National Real Estate Exam (PSI)FinancingHard
A borrower obtains an FHA-insured loan with a down payment of less than 10%. Which statement best describes the mortgage insurance premium (MIP) requirement?
- AMIP is required for the life of the loan
- BMIP is paid only as a one-time upfront premium
- CMIP automatically cancels once equity reaches 20%
- DMIP is optional and can be waived by the lender
Show answer & explanationAnswer & explanation
Correct answer: A. MIP is required for the life of the loan
For FHA loans with a down payment under 10%, annual MIP is required for the life of the loan, unlike conventional PMI which can be canceled at 20% equity.
Why the other options are wrong
- B. FHA loans require both an upfront premium and ongoing annual MIP.
- C. This describes conventional PMI cancellation rules, not FHA MIP.
- D. MIP is mandatory on FHA loans, not optional.
FHA Mortgage Insurance Premium (MIP)
Insurance required on FHA loans consisting of an upfront premium and an annual premium, protecting the lender against borrower default.
- Upfront MIP paid at closing (can be financed)
- Annual MIP paid monthly as part of payment
- With less than 10% down, MIP lasts for the life of the loan
Memory trick: FHA's insurance sticks around for life if you put down less than 10%.