What type of mortgage insurance is required for FHA loans?

FHA loans require borrowers to pay both an Upfront Mortgage Insurance Premium (UFMIP) and a monthly Mortgage Insurance Premium (MIP). This two-part system is designed to protect lenders against losses that may occur if a borrower defaults on their loan. The UFMIP is typically paid at the closing of the loan and can either be paid in cash or financed into the loan amount. The MIP is an ongoing premium paid monthly for the duration of the loan, ensuring that the lender has continuous coverage.

This requirement is critical for FHA loans as it enables the program to serve a broader range of borrowers, including those with lower credit scores or minimal down payments. Other types of loans, like conventional loans, may rely on Private Mortgage Insurance (PMI), but the FHA specifically uses its unique MIP system to secure the loans it backs. The presence of both upfront and monthly premiums is essential for understanding the cost structure and financial commitment associated with FHA financing.