If you have pursued a loan from the Federal Housing Administration (“FHA”), you have likely heard of Mortgage Insurance Premium (“MIP”); a prerequisite to obtaining an FHA loan is that the borrower maintain insurance. This article will briefly discuss the key information you need to possess regarding MIP, as well as information regarding the benefits the MIP fees provide who qualified home buyers.
“MIP” What is it?
At its core, an MIP is an insurance policy, which is required as a matter of course for all FHA loans. Generally speaking, FHA loans require a down payment of 3.5+% of the total price; since the down payment is so low, the government always seeks additional financial protections.
While insurance is generally designed to protect the insured from unforeseen complications, the MIP is primarily designed to protect the lender from those unforeseen complications; specifically, the MIP is designed to protect the FHA in the event the borrower is unable to make their payments and ultimately defaults.
“MIP” How Does it Work?
Once the FHA has approved your loan, and closed it, they will require you to make an upfront MIP payment (“UFMIP”). Additionally, they will require to make an annual MIP payment, the rate of which is calculated annually and paid monthly. As of today, the UFMIP rate is approximately 1.75% of the total value of your MIP loan. As an example, if you borrowed $500,000, your UFMIP would be $8,750. The annual premium on FHA loans is approximately 0.85%.
“MIP” How Does it Benefit the Borrower?
As detailed above, the MIP is primarily a tool to protect the government in FHA loans, but it also provides the buyer with benefits as well. As noted above, with an FHA loan, a buyer can put as little as 3.5% of the total value of the home down – something that is unheard of in any other context. In a nutshell, the MIP in FHA loans allows buyers the opportunity to purchase a home that would have otherwise been beyond their reach. It’s a matter of common sense that a lender will be more likely to provide a loan when they know that loan is protected by insurance.
Here at the Chernov Team, we believe that everyone should have an opportunity to live the American Dream. We are also aware that housing prices are on the rise, and this may effectively bar some people from being able to purchase a home. The FHA loans, backed by MIPs, are a great way to enable would-be-homebuyers the opportunity to own a home. At the Chernov Team we know that the person who comes to the table most prepared leaves with the most, and the Chernov Team always leaves with the most.
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The Federal Housing Administration, Mortgage Insurance Premiums, and Your Path to Homeownership
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