FHA Loans: Mortgage Insurance Premium

12/05/2021

If you are thinking about buying a home, an FHA home loan might be the right program for you. Mortgage Insurance Premium is a component of FHA home loans that you will want to know about if you decide to go with the FHA loan program. Below, we answer some common questions that you might have about Mortgage Insurance Premium.

FHA Loans: Mortgage Insurance Premium - USA Mortgage

What is Mortgage Insurance Premium?


For FHA loans, Mortgage Insurance Premium, or MIP, works a little differently than with other loan programs. MIP is a fee that is charged to borrowers on every FHA transaction regardless of how much money you put down. There is an upfront MIP, and a monthly MIP that FHA charges. The amount of Mortgage Insurance Premium you pay depends on the purchase price of the home you are buying and the amount of the loan you are seeking.


Is MIP Required on FHA Loans?


Mortgage Insurance Premium is required on all FHA loans. There are two Mortgage Insurance Premiums, one you pay upfront at closing and the other is included in your monthly mortgage payment. If you happen to refinance to another FHA loan within 3 years, you would be eligible for a pro-rated refund of the upfront fee. For Mortgage Insurance Premium, how much you have to pay depends on how much you are putting down.


Why is Mortgage Insurance Premium Necessary?


Mortgage Insurance Premium is used to protect the investor on a loan in the event that the borrower defaults on their payments and the home goes into foreclosure. In that worst-case scenario, the Mortgage Insurance Premium would be used to help repay part of the loan balance that would be lost on the next sale.


Will I Always Have to Pay Mortgage Insurance Premium?


Mortgage Insurance Premium stays on for the life of the loan unless you are putting 10% or more down. If that is the case, your Mortgage Insurance Premium can be removed after 11 years.

Here is a table outlining the different Mortgage Insurance Premium options:


Upfront Mortgage Insurance Premium

Annual Mortgage Insurance Premium

Understanding Mortgage Insurance Premium and how it relates to FHA home loans can seem daunting, but knowing the answers to the basic questions we proposed above will help you in deciding which loan program is right for you. Ask your Loan officer if you have any other questions, and they will be able to help you on your journey to homeownership.


FAQs: FHA and Mortgage Insurance Premium (MIP)


What is Mortgage Insurance Premium (MIP) on FHA loans?

Mortgage Insurance Premium (MIP) is a mandatory fee on all FHA loans, charged to borrowers regardless of the down payment amount. There are two types of MIP: an upfront fee paid at closing and a monthly fee included in your mortgage payments. The amount of MIP you pay is determined by the purchase price of the home and the loan amount.

Why is Mortgage Insurance Premium necessary?

MIP protects the lender by covering losses if the borrower defaults and the home goes into foreclosure. This insurance helps ensure that lenders are repaid, making FHA loans more accessible to borrowers by reducing the risk to lenders.

Is MIP required on all FHA loans?

Yes, MIP is required on all FHA loans. Borrowers must pay an upfront MIP at closing, and a monthly MIP is included in the mortgage payments. If you refinance to another FHA loan within three years, you may receive a pro-rated refund of the upfront MIP fee. The total MIP amount depends on the down payment size and loan terms.

USA Mortgage Abadi Region

USA Mortgage Abadi Region

A full-service mortgage lender with local branches in Missouri, Arkansas, Illinois, and nearby areas.