Q.Do you need PMI with an FHA mortgage?

A. You need mortgage insurance if you don't put down 20% on your FHA purchase, but it's not called PMI (private mortgage insurance). PMI refers to mortgage insurance on conventional loans. Mortgage insurance on an FHA loan is just called "mortgage insurance," and it differs from PMI in a couple of ways.

The FHA charges an upfront insurance premium of 1.75% of your mortgage amount, and it's due at closing. While that amount can be added to your loan amount, it's still an extra charge.

The annual cost is about the same as private mortgage insurance for conventional loans -- 0.5% of the loan balance, usually broken into 12 monthly payments added to your mortgage statement. But under new rules, if you put less than 5% down, your monthly premium will increase to 0.55% a month.

But you can look at it another way. If you got a conventional loan, you would have to put down 5% of your own money instead of the 3.5% required by the FHA, which can be a gift. And you'd still have to pay 0.5% a year in PMI. So the possible 5.25% you need for the FHA purchase turns out to cost just a little more upfront than a conventional loan would.

You must continue this coverage until you've paid off 22% of the principal, which would take roughly 12 years at 6%. Conventional loans allow you to drop mortgage insurance as soon as you hold 20% of your home's equity -- the difference between what the home is worth and how much you owe on your loan. That can include any appreciation in your home's value, not just paying down the debt.

Here's where to find out more about FHA loans.