FHA MIP vs Conventional PMI for San Diego Buyers
Quick answer: FHA mortgage insurance (MIP) and conventional private mortgage insurance (PMI) are not interchangeable. FHA charges upfront MIP plus an annual premium that often lasts for the life of the loan if you put less than 10% down. Conventional PMI is usually monthly only, is priced to your credit and down payment, and can typically be cancelled at 80% loan-to-value. In San Diego, the cheaper path is the one with the lower total monthly cost over the years you will actually keep the loan, not the one with the smaller down payment.
San Diego buyers hear "FHA is cheaper because it is 3.5% down" in almost every first conversation. That is a cash-to-close statement, not a payment statement. Left Coast Leaders, Inc. (NMLS #2394495) prices both structures on the same house because the insurance line is often the difference between a payment that fits Chula Vista or El Cajon and one that does not.
This guide is about the insurance, not the full FHA vs conventional decision. If you already know you are conventional, see how PMI comes off. If you are still choosing a program, start here, then we layer in rate, credit, and DTI.
What you actually pay: two different products
FHA MIP has two pieces on a typical purchase:
- Upfront MIP: 1.75% of the base loan amount on most purchase loans. It is usually financed into the loan, so you pay interest on it for as long as you keep the mortgage.
- Annual MIP: a yearly premium collected monthly. On many 30-year FHA loans it has been 0.55% of the base loan amount since HUD's 2023 cut. The exact factor depends on term, base LTV, and current HUD tables. Confirm the factor on your Loan Estimate.
Conventional PMI is usually a monthly premium only. The rate is set by the mortgage insurer from your credit score, LTV, occupancy, and loan type. A 760-score file at 5% down does not pay the same PMI as a 680-score file at 3% down. That is why a national "PMI is 0.5%" average is useless on a San Diego purchase.
VA does not use MIP or PMI. Eligible buyers should price a VA loan before they spend time comparing insurance products they may not need.
How long it lasts: this is where FHA gets expensive
Duration is the part most San Diego shoppers miss.
- FHA with less than 10% down: annual MIP typically stays for the life of the loan. Hitting 80% equity later does not turn it off.
- FHA with 10% or more down: annual MIP typically ends after 11 years if the loan is current.
- Conventional borrower-paid PMI: you can usually request cancellation at 80% LTV, and federal law typically terminates it at 78% of original value if you are current. See the PMI removal guide for original-value vs a current San Diego appraisal.
Lender-paid PMI is a different animal. It is baked into a higher note rate and generally cannot be cancelled. If a quote looks "no PMI," ask whether that is 20% down, lender-paid PMI, or a VA/USDA structure.
San Diego math: 3.5% down is not a free lunch
Use a local price, not a Midwest example. Take an $850,000 purchase in Chula Vista, Oceanside, or El Cajon, which is a realistic FHA-range house under the 2026 high-cost limit (see San Diego conforming limits).
| FHA 3.5% down | Conventional 5% down | |
|---|---|---|
| Cash down | $29,750 | $42,500 |
| Base loan | $820,250 | $807,500 |
| Upfront insurance | 1.75% UFMIP, usually financed (about $14,350) | None on standard borrower-paid PMI |
| Monthly insurance (illustrative) | About $376/month at 0.55% of base | Often lower than FHA MIP on a 720+ credit file; priced to score and LTV |
| When insurance can stop | Usually not until you refinance, if you put under 10% down | Typically at 80% LTV by request, 78% automatic vs original value |
Two takeaways from that table. First, FHA saves cash at the table and then adds a financed UFMIP balance you pay interest on. Second, even if monthly MIP and PMI look close in year one, FHA keeps charging after conventional PMI would have dropped. On San Diego appreciation, many owners in Clairemont or Chula Vista reach 80% current-value LTV years before FHA MIP would ever end.
If you can stretch to 10% down on FHA, the 11-year MIP clock is a real improvement, but you should still price low-down conventional on the same day. Conventional at 5% or 3% (HomeReady / Home Possible, when you qualify) plus cancellable PMI often beats life-of-loan MIP once credit is in the 700s.
When FHA MIP still wins in this county
FHA is not the expensive option for every file. It is often the right tool when:
- Credit is in the mid-600s and conventional PMI pricing (or eligibility) is painful. PMI is aggressively credit-tiered. See how scores affect California pricing.
- You need the 3.5% down and cannot close conventional without draining reserves you will need after closing.
- Recent credit events (foreclosure, bankruptcy, short sale) fit FHA waiting periods better than conventional.
- You plan to refinance to conventional within a few years anyway, and the FHA payment is the one that lets you buy the house now. That only works if you model the future refinance, not hope for it.
Condo files are a separate screen. FHA has project rules. Conventional has warrantability rules. Insurance type does not fix a project that neither investor will take. Price the unit after the project clears, not before.
How we compare the two on a real file
- Same purchase price, same tax and insurance estimate, same HOA if any. San Diego property tax and Mello-Roos (if the tract has it) go in both columns.
- FHA: 3.5% and, if you have it, 10% down, with UFMIP financed, current annual MIP factor, and the HUD duration rule for that LTV.
- Conventional: 3%, 5%, and 10% down with borrower-paid PMI at your actual credit tiers, plus a no-PMI 20% quote so you can see the insurance line in isolation.
- Hold period: 3 years, 7 years, and "until 80% LTV." That last one is where conventional usually pulls ahead in this market.
Amir Nurani (NMLS #197458) will not tell you FHA is "the first-time buyer loan." It is one structure. On an $850,000 San Diego purchase, the insurance decision is thousands of dollars a year, not a footnote. Use the payment calculator for principal and interest, then add the insurance line we quote from the actual program, not a national average.
Frequently asked questions
On most FHA loans with less than 10% down, annual MIP lasts for the life of the loan. If you put 10% or more down, annual MIP typically ends after 11 years. Conventional PMI can usually be cancelled at 80% loan-to-value.
Not automatically. FHA can win on credit flexibility and a 3.5% down payment. On a typical San Diego purchase, conventional PMI is often cheaper monthly for mid-700 credit and it can come off with equity. Price both with taxes, insurance, and the actual loan amount.
Yes, that is the usual exit. Once equity, credit, and DTI support a conventional loan at or under 80% LTV, a rate-and-term refinance can replace FHA MIP with no PMI. Run break-even against your current FHA rate and closing costs before you refinance just to drop MIP.
Want FHA and conventional priced on the same San Diego house?
We will run MIP vs PMI with your credit, down payment, and a full PITI number, not a rate-only quote.
Get Pre-Approved(619) 366-9494 · Amir Nurani · NMLS #197458
Left Coast Leaders, Inc. · NMLS #2394495 · DRE #02191517 · Equal Housing Lender · San Diego, CA