Putting less than 20 percent down is how most first-time buyers in Central Florida get into a home, and it comes with a built-in extra cost: mortgage insurance. The catch is that mortgage insurance is not one thing. An FHA loan charges an upfront premium plus a monthly one that works by HUD’s rules. A conventional loan charges private mortgage insurance (PMI) that follows a different set of rules. Knowing the difference can change which loan you pick and how long you pay.
What mortgage insurance actually does
Mortgage insurance protects the lender, not you. It lets lenders approve borrowers with smaller down payments by covering part of the loss if a loan goes into default. You pay for it, but you are not the one protected, which is why it is worth understanding what you are buying and when it ends.
How FHA mortgage insurance (MIP) works
FHA loans, insured by the Department of Housing and Urban Development (HUD), carry two charges:
- Upfront mortgage insurance premium (UFMIP): 1.75% of the base loan amount, per HUD’s current published schedule (Mortgagee Letter 2023-05). Most borrowers roll it into the loan rather than paying cash at closing.
- Annual MIP: charged monthly. For a 30-year loan at or under HUD’s base loan threshold in that letter, the rate is 0.50% of the loan when you start with a loan-to-value (LTV) of 95% or less, and 0.55% when LTV is above 95%.
How long the annual MIP lasts depends on your starting LTV. If your LTV at the start is 90% or less (10% or more down), the annual MIP runs for 11 years. If it is higher than 90%, it runs for the full mortgage term. That second rule is the one that surprises people: with the minimum down payment, the only way to end FHA mortgage insurance is usually to refinance into a different loan.
Always confirm the current rates on HUD.gov or your Loan Estimate, since HUD can change the schedule.
How conventional PMI works
Conventional loans (not government-insured) use private mortgage insurance when you put down less than 20%. Pricing is set by the insurer and depends on your credit score, down payment and loan details, so unlike FHA there is no single published percentage. Typically there is no big upfront charge, and the monthly cost can be lower for borrowers with strong credit.
The biggest difference is how it ends. Under the federal Homeowners Protection Act, as the CFPB explains:
- You can ask your servicer to cancel PMI once your balance is scheduled to reach 80% of the home’s original value, if you are current, have no second mortgage, and can show the home has not declined in value.
- Your servicer must cancel it automatically when your balance is scheduled to reach 78% of the original value, as long as you are current.
- It must also end the month after the midpoint of the loan’s term (year 15 of a 30-year loan), even if you have not reached 78%.
The CFPB notes these rules apply to many single-family primary-residence loans closed on or after July 29, 1999, and that FHA and VA loans have their own requirements.
A side-by-side example
These numbers are illustrations calculated from HUD’s published rates, not a quote. Take a $300,000 Orlando-area purchase.
| 3.5% down ($10,500) | 10% down ($30,000) | |
|---|---|---|
| Base loan amount | $289,500 | $270,000 |
| Upfront MIP (1.75%) | $5,066 | $4,725 |
| Annual MIP rate | 0.55% | 0.50% |
| First-year MIP, about | $1,592 (about $133/month) | $1,350 (about $113/month) |
| How long it lasts | Full loan term | 11 years |
The annual premium is calculated on the declining balance, so the monthly amount drifts down a little each year. The bigger point is duration. The 3.5%-down borrower keeps paying for the life of the loan unless they refinance, while the 10%-down borrower is done after 11 years.
Which one fits your situation?
- Lower credit score or limited savings: FHA is often the more accessible path because it is built for borrowers who may not qualify for the best conventional pricing. Our FHA loan guide for Florida first-time buyers covers eligibility in detail.
- Strong credit and at least 5% down: conventional with PMI may cost less each month and gives you a defined path to drop it as you build equity.
- Planning to stay a long time: favor the structure that lets mortgage insurance end. Planning to move in a few years: the total length matters less than the monthly payment.
The honest answer is to compare both on the same day with the same assumptions. Ask for Loan Estimates for each loan type, and use our guide to pre-approval versus pre-qualification to get comparable numbers early. If you are weighing a bigger up-front payment against a lower rate, our article on discount points versus lender credits works through that break-even math.
Mortgage insurance is not the only monthly add-on
Your payment also includes taxes and homeowners insurance, often collected through an escrow account. In Florida, insurance can be the larger surprise. Before you finalize a budget, it helps to understand replacement cost versus actual cash value coverage, since your lender will require coverage on the home. Remember to add one-time costs too: see our breakdown of Florida mortgage closing costs.
Two other pieces of the FHA process affect cost. FHA requires its own appraisal, which is not a home inspection; this explanation of the FHA appraisal versus home inspection shows why you want both. And if you are still at the starting line, the first-time home buyer guide for Central Florida walks through the full buying process.
Common mistakes
- Comparing only the interest rate and ignoring mortgage insurance on one of the offers.
- Assuming FHA mortgage insurance drops off on its own at 80% equity. For loans starting above 90% LTV it does not.
- Forgetting that the upfront premium is usually added to the loan balance.
- Not asking when and how PMI can be removed before choosing a conventional loan.
Frequently asked questions
Is FHA mortgage insurance tax deductible?
Tax treatment changes over time and depends on your situation, so ask a tax professional rather than relying on a general guide.
Can I get rid of FHA mortgage insurance?
If you put down 10% or more, annual MIP ends after 11 years under HUD’s schedule. If you start above 90% LTV, it lasts the full term, so the usual way out is refinancing.
When does PMI come off a conventional loan?
You can request removal at 80% of the original value if you meet the conditions, and it must end automatically at 78% or at the loan’s midpoint, per the CFPB.
Which has the lower monthly cost, FHA or conventional?
It depends on your credit score, down payment and the day’s pricing. Compare Loan Estimates for both rather than assuming.
Does the upfront FHA premium have to be paid in cash?
It can be paid at closing or financed into the loan; most borrowers finance it.
Written by Tariq AbouAdma, Mortgage Loan Originator, NMLS #2724176 (Loan Factory NMLS #320841). This article is educational, not a loan offer or commitment; rates, premiums and terms vary by lender, loan program and borrower. Want FHA and conventional side by side for your own scenario? Call Quality Real Estate Finance at 407-476-6667.