Which type of loan typically requires an MIP?

FHA loans, or Federal Housing Administration loans, typically require a Mortgage Insurance Premium (MIP). This insurance is required for all FHA loans to protect the lender in case of borrower default, reflecting the increased risk associated with lower down payment loan programs. MIP is an essential aspect of FHA lending because these loans are designed to help borrowers who might not qualify for conventional loans due to lower credit scores or limited savings.

The MIP works by adding a cost to the monthly mortgage payment, ensuring lenders are compensated for the risk. It also includes an upfront premium that can be financed into the loan amount. This structure allows borrowers to access housing finance options that might otherwise be unavailable, thereby promoting homeownership, particularly among first-time buyers or those with less-than-perfect credit histories.