What is MIP (Mortgage Insurance Premium)?
A HUD mortgage insurance premium, or MIP, is paid annually, beginning at closing for each year of construction and then annually.
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A HUD mortgage insurance premium, or MIP, is paid annually, beginning at closing for each year of construction and then annually. MIP for HUD multifamily construction loans is:
65 basis points for market rate properties
70 basis points for Section 220 urban renewal projects that are not Section 8 or LIHTC
25 basis points for projects that qualify for the green MIP reduction program.
What is the purpose of MIP (Mortgage Insurance Premium)?
The purpose of MIP (Mortgage Insurance Premium) is to provide additional security to the lender in case of default on the loan. MIP is an annual payment on a HUD mortgage, paid at closing and annually. For HUD 223(f) loans, MIP is 25 basis points for properties using a Green MIP Reduction, 65 basis points for market rate properties, 45 basis points for Section 8 or new money LIHTC properties, and 70 basis points for Section 220 urban renewal projects that are not Section 8 or LIHTC. For HUD 232 loans, MIP is 1% of the loan amount (due at closing) and 0.65% annually (escrowed monthly).
How much does MIP (Mortgage Insurance Premium) cost?
MIP (Mortgage Insurance Premium) costs vary depending on the loan program. For the HUD 223(a)(7) loan program, MIP costs are 0.50% upfront and 0.50% annually for market rate properties, 0.35% upfront and 0.35% annually for affordable properties, and 0.25% upfront and 0.25% annually for Green MIP properties. For the HUD 221(d)(4) loan program, MIP costs are 0.65% upfront and 0.65% annually for market rate properties, 0.45% upfront and 0.45% annually for affordable properties, 0.70% upfront and 0.70% annually for Section 220 properties, and 0.25% upfront and 0.25% annually for Green MIP properties. For the HUD 223(f) loan program, MIP costs are 25 basis points for properties using a Green MIP Reduction, 65 basis points for market rate properties, 45 basis points for Section 8 or new money LIHTC properties, and 70 basis points for Section 220 urban renewal projects that are not Section 8 or LIHTC. For more information, please see What is MIP (Mortgage Insurance Premium) and MIP (Mortgage Insurance Premium) and the HUD 223(f) Loan Program.
What are the benefits of MIP (Mortgage Insurance Premium)?
MIP (Mortgage Insurance Premium) is an important consideration when looking at HUD loans. It is a type of insurance that protects the lender from losses that occur when a borrower defaults. While upfront and annual MIPs are costs you must look at when exploring your loan options, there are ways to reduce them — and even without a reduction, HUD loans are still generally much less costly than other types of multifamily debt, even Fannie Mae and Freddie Mac loans.
The benefits of MIP include:
- Protection for the lender from losses that occur when a borrower defaults
- Reduced costs for HUD loans compared to other types of multifamily debt
- The ability to reduce MIPs through the Green MIP Reduction program
How long does MIP (Mortgage Insurance Premium) last?
MIP (Mortgage Insurance Premium) lasts for the life of the loan, and is set at a fixed rate. However, as a borrower pays off the principal balance of their loan, the amount of MIP they’re required to pay declines as well. This information is according to HUD 221(d)(4) Loans.
What are the differences between MIP (Mortgage Insurance Premium) and PMI (Private Mortgage Insurance)?
MIP (Mortgage Insurance Premium) and PMI (Private Mortgage Insurance) are both types of mortgage insurance that protect lenders in the event of a borrower defaulting on their loan. MIP is typically required for loans backed by the Federal Housing Administration (FHA), while PMI is typically required for loans not backed by the FHA.
MIP is paid for by the borrower and is typically a one-time payment at closing. PMI is also paid for by the borrower, but is typically an ongoing payment that is included in the monthly mortgage payment.
MIP is typically lower than PMI, but the cost of MIP can vary depending on the type of loan and the loan amount. PMI is typically a fixed percentage of the loan amount.
How can I avoid paying MIP (Mortgage Insurance Premium)?
The best way to avoid paying MIP is to look into HUD loans, which are generally much less costly than other types of multifamily debt, even Fannie Mae and Freddie Mac loans. Additionally, you can look into Green MIP Reductions, which can help reduce the amount of MIP you have to pay. For more information, please visit this guide to HUD Mortgage Insurance Premiums.
To learn more about HUD multifamily construction loans like the HUD 221(d)(4) loan, fill out the form below and a HUD lending expert will get in touch.