MIP

What does "MIP" mean in real estate?

MIP stands for Mortgage Insurance Premium. In real estate finance, MIP is the insurance required on FHA loans that protects the lender if a borrower defaults. Because MIP reduces lender risk, it enables borrowers with smaller down payments or lower credit scores to qualify for mortgage financing.

Types of MIP

MIP is charged in two ways:

• Upfront MIP (UFMIP): A one-time fee typically equal to 1.75% of the loan amount. It’s paid at closing or rolled into the loan balance.
• Annual MIP: Paid monthly as part of your mortgage payment. The rate varies based on loan amount, loan term, and the loan-to-value (LTV) ratio.

How MIP works (simple example)

MIP is calculated on the FHA-insured loan amount and added to the borrower’s monthly housing costs. The exact annual percentage depends on program rules; for many single-family FHA loans under the current thresholds, annual MIP ranges roughly from 0.50% to 0.85% (varies by LTV and term).

Real-world scenarios

Example 1 — First-time buyer with small down payment

Sarah takes a $200,000 FHA loan and puts down 3.5% ($7,000). Her MIP costs:

• Upfront MIP: 1.75% × $200,000 = $3,500 (paid or financed into the loan)
• Annual MIP: If her annual rate is 0.55%, that’s $200,000 × 0.55% = $1,100/year ≈ $91.67/month

Result: Sarah’s monthly mortgage payment includes principal, interest, taxes, homeowner’s insurance and the $91.67 MIP—raising monthly cost but enabling purchase with a small down payment.

Example 2 — Refinancing an existing FHA loan

John refinances to a $250,000 FHA loan with an 85% LTV. His MIP:

• Upfront MIP: 1.75% × $250,000 = $4,375
• Annual MIP: At 0.50% annual MIP, $250,000 × 0.50% = $1,250/year ≈ $104.17/month

Result: John pays MIP on the new loan but may still lower total monthly costs if he secures a lower interest rate.

Example 3 — Multifamily investment with FHA financing

An investor borrows $1,000,000 for a market-rate multifamily property. Annual MIP for such loans can be around 0.60%–0.65%:

• At 0.60%: $1,000,000 × 0.60% = $6,000/year ≈ $500/month

Result: MIP increases carrying costs but allows financing with lower equity up front.

Factors that affect MIP

• Loan amount and loan program
• Loan-to-value (LTV) ratio and down payment size
• Loan term (15-year vs 30-year FHA loans can have different rates)
• Property type (single-family vs multifamily)

How long do you pay MIP?

Duration depends on when the loan originated, the down payment, and current FHA rules. In many cases:

• If the original LTV is greater than 90%, MIP may last for the life of the loan.
• If the original LTV is 90% or less, MIP may be required for 11 years.

Always confirm current FHA guidelines or consult your lender—rules have changed over time.

MIP vs PMI

People often compare MIP to private mortgage insurance (PMI). Key differences:

• MIP is for FHA-insured loans; PMI is for conventional loans.
• MIP typically has an upfront fee plus annual charges and can be less flexible to cancel than PMI.
• PMI can often be removed once equity reaches 20%–22%; MIP cancellation rules depend on FHA origination date and LTV.

Practical implications for buyers and investors

• Budget for MIP when comparing loan options—MIP affects monthly payment and long-term cost.
• Consider whether a conventional loan with PMI might be cheaper overall if you can make a larger down payment or qualify for a better rate.
• Refinancing out of an FHA loan into a conventional loan can eliminate ongoing MIP, but weigh closing costs and current interest rates.

Bottom line

MIP (Mortgage Insurance Premium) is the insurance cost tied to FHA loans that protects lenders and expands access to homeownership for borrowers with smaller down payments or lower credit scores. Understand the upfront and annual components, how long you'll pay them, and how MIP compares to PMI so you can choose the mortgage that best fits your budget and goals.