The difference between mortgage insurance on a Conforming loan vs. FHA loan is the duration of mortgage insurance.
The difference is the duration of mortgage insurance.
Mortgage Insurance (or MI) is an insurance policy that protects the loan servicer from any losses that could potentially result from a borrower defaulting on their mortgage loan. Since the 2008 financial crisis, mortgage insurance is required on certain loan products, such as all FHA loans and any Conforming loans that exceed an 80% loan-to-value (LTV) ratio at the time of purchase.
When associated with FHA financing, mortgage insurance is referred to as the Mortgage Insurance Premium (or MIP). When associated with Conforming financing, mortgage insurance is referred to as Private Mortgage Insurance (or PMI). MIP is required throughout the life of the FHA loan; PMI may eventually be removed from the Conforming loan via refinance, paying down the loan's principal balance to an 80% loan-to-value ratio, or natural amortization to a 78% loan-to-value ratio.
FHA financing also carries Upfront Mortgage Insurance Premium (UFMIP). UPFMIP is typically financed by adding it on top of the base loan amount; however, UFMIP can also be paid in cash at closing. It is calculated at 1.75% of the base loan amount.
The "PMI factor" used to calculate how much mortgage insurance is required for a Conforming loan is dependent on the borrower's credit score and down payment percentage. The higher the credit score and down payment, the lower the monthly mortgage insurance.
Mortgage insurance is paid on a monthly basis for FHA loans and is usually paid on a monthly basis for Conforming loans. However, mortgage insurance can also be paid in full at closing for a Conforming loan. This "single-premium" MI requires one lump sum payment as a closing cost and removes the need for subsequent monthly MI payments. However, the amount of single premium MI due at closing is typically higher than the total amount of MI a borrower will actually spend if paying every month because most borrowers will remove PMI (via refinance or extra principal payments) before it's scheduled to naturally fall off the loan.