An MLO is comparing a conventional loan with PMI versus an FHA loan for a borrower with 5% down payment. The conventional loan rate is 4.0% with 0.5% PMI, while the FHA rate is 4.25% with 0.85% MIP. What additional factor is crucial for an accurate comparison?
Correct Answer
B) PMI cancellation rules versus MIP duration requirements
A critical factor in comparing conventional loans with PMI versus FHA loans with MIP is understanding when these mortgage insurance payments can be removed. Conventional PMI can typically be cancelled at 78-80% LTV, while FHA MIP for loans with less than 10% down payment remains for the life of the loan, significantly affecting the long-term cost comparison.
Why This Is the Correct Answer
A critical factor in comparing conventional loans with PMI versus FHA loans with MIP is understanding when these mortgage insurance payments can be removed. Conventional PMI can typically be cancelled at 78-80% LTV, while FHA MIP for loans with less than 10% down payment remains for the life of the loan, significantly affecting the long-term cost comparison.
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