What is MIP for mortgage insurance?
Mortgage insurance premium (MIP) is a cost imposed on by the Federal Housing Administration on loans it backs. Mortgage insurance premiums function similarly to private mortgage insurance on conventional mortgages.PurposeThe FHA essentially functions as an insurer for the mortgages it backs. The premiums it collects are used to pay back lenders when borrowers default on their loans.Costs at ClosingEveryone who takes out an FHA-backed mortgage must pay an upfront mortgage premium. As of 2010, the fee was 2.25 percent of the amount being borrowed.ConsiderationsIf you cannot afford to pay the upfront fee from money you already have, you are allowed to increase the size of your mortgage to pay the fee.Monthly PremiumsYou must pay monthly mortgage insurance until you achieve a loan-to-value ratio of 78 percent or lower.
