Reader Gerald asked, Does either of the packages address whether or not PMI will be required with deposits of less than a certain percentage, and what would that percentage be?

Actually, FHA loans do not use PMI, but rather mutual mortgage insurance (MMI). MMI is made up of an upfront mortgage insurance premium (MIP) and monthly mortgage insurance (MI).

The upfront MIP is required for all borrowers with less than a 20% down payment. On a 30-year fixed-rate loan the MIP is 1.5% of the total loan amount. Any unused portions of the MIP can be refunded within 84 months of loan term (7 years).

The monthly MI is .05% of the total loan amount per year. Borrowers who put down at least 10% on a 15-year loan are exempt from paying monthly MI. For the rest of borrowers paying monthly MI, it is cancelled after 78% of the principle has been paid off. For this cancellation to happen, borrowers must have made all MI payments on a 30-year loan for five consecutive years.

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