MIP, or Mortgage Insurance Premium, is required for all FHA loans. Unlike Private Mortgage Insurance (PMI), MIP is required regardless of the size of the down payment. It's designed to protect lenders against losses that can occur when a borrower defaults on their mortgage.
MIP is mandatory for all FHA loans, which are government-backed mortgages. It's applicable both to purchases and refinances, including loans with down payments of 20% or more.
MIP typically involves both an upfront premium (which can be financed into the mortgage) and an annual premium, which is paid monthly. The cost varies depending on the loan's term and the amount borrowed, but it usually ranges from 0.45% to 1.05% of the loan amount annually.
For FHA loans issued after June 3, 2013, if you put less than 10% down, MIP cannot be eliminated unless you refinance into a non-FHA loan. For loans where the initial down payment was 10% or more, MIP can be removed after 11 years.
MIP allows individuals who might not qualify for a conventional mortgage to still become homeowners. By protecting lenders, it encourages them to offer loans to a broader range of borrowers.