Mortgage insurance premiums (MIP) are fees charged by the Federal Housing Administration (FHA) for its mortgage insurance program. This program allows borrowers to obtain an FHA-insured loan with a smaller down payment, usually 3.5%, than a conventional loan. MIP protects lenders against losses if the borrower defaults on the loan.
There are two types of MIP that are charged on FHA loans:
Upfront Mortgage Insurance Premium (UFMIP): This is a one-time fee paid at closing, typically financed as part of the loan amount or paid in cash. The amount of UFMIP varies depending on the loan term, loan amount, and loan-to-value ratio (LTV).
Annual Mortgage Insurance Premium (MIP): This is a recurring fee paid monthly with the borrower’s mortgage payment. The amount of MIP varies depending on the loan term, loan amount, and LTV.
The MIP rate varies depending on the amount of the loan, the term of the loan, and the loan-to-value (LTV) ratio. MIP is required on all FHA loans and typically cannot be canceled unless the borrower refinances into a non-FHA loan or pays off the loan in full.
It’s important to note that MIP is different from private mortgage insurance (PMI), which is required on conventional loans when the down payment is less than 20% of the home’s purchase price.
