What is a key difference between FHA-insured mortgages and private mortgage insurance?

FHA-insured mortgages involve specific insurance premiums that are required for the entirety of the loan's life. This is a key aspect of FHA loans, as borrowers must pay both an upfront mortgage insurance premium and monthly insurance premiums throughout the life of the loan. The purpose of these payments is to protect the lender in case the borrower defaults, allowing for the extension of loans to borrowers who may not qualify under conventional financing criteria.

In contrast, private mortgage insurance (PMI) can have different structures and does not necessarily require premiums for the life of the loan. PMI is often required only when a borrower's down payment is less than 20% of the home's value, and it can potentially be removed once the homeowner builds sufficient equity. Therefore, the longevity of the required insurance premiums in FHA mortgages is a distinguishing characteristic that sets it apart from private mortgage insurance.

Understanding this aspect helps clarify how FHA loans operate and what borrowers can expect regarding insurance costs over their mortgage term.