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FHA Upfront MIP

MIP stands for mortgage insurance premium and is required to close an FHA loan. It is paid as an upfront cost and as an annual premium.

 The upfront mortgage insurance premium (UFMIP) is one of two types of FHA mortgage insurance that covers the lender’s losses if you default on your FHA loan. The premium equals 1.75% of your loan amount, and is typically financed (added) to the loan balance. 

The second type of FHA mortgage insurance is the annual mortgage insurance premium (MIP), which ranges from 0.45% to 1.05% of your loan amount depending on the term, loan amount and down payment. MIP is charged annually, divided by 12 and added to your monthly payment. 

There are four major differences between private mortgage insurance (PMI) charged on a conventional loan and MIP charged on an FHA loan:

  1. Conventional loans only require one type of PMI paid monthly, as a lump sum or financed into the interest rate. FHA charges both a lump sum, upfront MIP and an annual premium paid monthly. 
  2. Conventional PMI premiums vary significantly based on your credit score. Credit scores do not affect the FHA MIP. 
  3. You can avoid PMI by making at least a 20% down payment. You’ll pay FHA MIP regardless of down payment. 
  4. You can cancel conventional PMI once you have 20% home equity. Home equity doesn’t affect FHA MIP payments.