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What Is FHA MIP?

09-05-2014About MortgagesEddie Knoell

MIP is an insurance premium paid to the FHA for its guarantee of the mortgage to your lender. It is this FHA guarantee of your mortgage that motivated the lender to extend the loan to you. These insurance premiums fund the loan losses incurred by the FHA.

The Mortgage Insurance Premium is paid by the borrower in two parts. First, there is a premium paid when the loan is granted. Currently, this front-end premium is 1.75% of the loan amount. Then, there is an additional premium that is collected with each monthly loan payment.

Currently, the annual insurance premium ranges from 45 basis points to 155 basis points. One basis point is equal to .01%. So, a loan amount of $100,000 with a premium of 50 basis points will have an annual MIP of $500. (.0050 * $100,000)

The size of the annual MIP will depend on the size of the loan and whether the loan repayment period is greater or lesser than 15 years.

How Can I Avoid MIP?

You can’t. If you are getting an FHA mortgage, then you will have to pay MIP. The best you can do is this: If the loan amount is less than 90% of the value of the home when you purchase it, then the annual MIP will end after 11 years.

What Is The Difference Between MIP and PMI?

PMI is Private Mortgage Insurance, which is required on conventional loans in which the loan amount is greater than 80% of the value of the property. With PMI, there is no upfront premium; only the annual premium. And once the balance of the loan is paid down to less than 80% of the purchase price, the PMI is discontinued.

Want To Learn More About MIP and PMI?

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