What is the upfront mortgage insurance premium (MIP) for FHA mortgages?

The upfront mortgage insurance premium (MIP) for FHA mortgages is set at 1.75% of the loan amount. This premium is required for all FHA loans and is intended to protect lenders against potential losses in the event of borrower default. The upfront MIP can be rolled into the loan amount, which means borrowers can finance this cost rather than having to pay it in cash at closing. This feature makes FHA loans more accessible for buyers who may have limited resources for large upfront costs.

Over the years, the percentage for upfront MIP has been adjusted, but 1.75% has been a standard rate for many years. Borrowers should understand that this upfront cost, in addition to the annual MIP that is paid monthly over the life of the loan, contributes to the overall cost of borrowing and should be factored into their budgeting when considering an FHA-backed mortgage. Understanding this aspect of FHA loans is crucial for potential homebuyers who are navigating their financing options.