No PMI

• For conventional mortgages, lenders typically require you to pay for private mortgage insurance, or PMI, if you make a down payment of less than 20 percent. When you take out an FHA mortgage, the government forbids lenders from requiring you to pay for PMI. Since the government is backing the loan, the lender should not be able to make you pay for additional insurance, regardless of the size of your down payment.
  
  

MIP Instead

• When you take out an FHA loan, the government charges you mortgage insurance premiums, abbreviated MIP. You must pay an upfront MIP charge equal to 1 percent of the loan amount. For example, if you borrow $194,000, your upfront MIP charge would be $1,940. If you have a term of 15 years, you do not have to pay any monthly insurance premiums if you make a down payment of more than 10 percent. However, all other FHA mortgages require monthly MIP payments.
  
  

Stopping Monthly MIP

• If you must pay monthly mortgage insurance premiums, how long you have to pay them depends on the length of your mortgage. For mortgages with terms of 15 years or less, you will no longer be charged MIP after you have lowered the balance of your loan to no more than 78 percent of your home's value. If you have a mortgage term longer than 15 years, such as a 30-year mortgage, you have to pay monthly MIP for at least five years until your balance drops below 78 percent of the home's value.
  
  

Tax Deductions

• As with private mortgage insurance premiums, you can deduct the mortgage insurance premiums that you pay if your FHA mortgage was taken out after 2006. To claim a deduction for FHA mortgage insurance premiums, you have to itemize your deductions with the Internal Revenue Service's Schedule A. The amount that your FHA MIP premiums will reduce your taxes depends on your marginal tax bracket. The higher your tax bracket, the greater the savings.