Mortgage insurance premiums (MIP)

Mortgage Insurance Premiums (MIP) are fees charged by the Federal Housing Administration (FHA) to borrowers who take out FHA loans.   These premiums serve as insurance for the lender in case the borrower defaults on the loan.

There are two types of Mortgage Insurance Premiums associated with FHA loans:

1. Upfront Mortgage Insurance Premium (UFMIP):

• The UFMIP is a one-time fee paid at closing or rolled into the loan amount.
• The amount of the UFMIP is a percentage of the loan amount and is typically around 1.75%.
• This premium helps fund the FHA insurance program and protects the lender against losses if the borrower defaults on the loan.

2. Annual Mortgage Insurance Premium (Annual MIP):

• The Annual MIP is an ongoing fee paid annually over the life of the loan.
• The amount of the Annual MIP depends on factors such as the loan amount, loan-to-value ratio (LTV), and loan term.
• The Annual MIP is typically divided into monthly payments and added to the borrower’s mortgage payment.
• Unlike Private Mortgage Insurance (PMI) for conventional loans, which can be canceled once the borrower reaches a certain amount of equity in the home, FHA loans require borrowers to pay the Annual MIP for the entire loan term, regardless of the loan-to-value ratio.
•  

Mortgage Insurance Premiums are designed to protect lenders against losses associated with FHA loans, which typically have lower down payment requirements and more lenient credit requirements compared to conventional loans.   While MIP increases the cost of borrowing for FHA borrowers, it also makes homeownership more accessible to borrowers who may not qualify for conventional financing.