What is mortgage insurance premium (MIP)?

Mortgage insurance premium (MIP) is an upfront and annual insurance premium that's required for any Federal Housing Administration (FHA) home loan—regardless of the size of the down payment. It protects the lender in case the borrower defaults on the loan. MIP differs from private mortgage insurance (PMI), which is reserved for conventional loans. Read this article to learn how mortgage insurance premium gets calculated.

FHA loans require both an upfront MIP (UFMIP) and an annual MIP. The UFMIP can be incorporated into the loan amount, while the annual MIP forms part of your monthly mortgage payment. When you close on a home using an FHA loan, you're subjected to an upfront MIP charge, calculated as a percentage of the home's sales price. An additional insurance premium is also calculated into the monthly payment on an FHA loan. Read this article to learn how mortgage insurance premium gets calculated.