What does MIP insure?

MIP, or Mortgage Insurance Premium, is a type of insurance that protects lenders against losses when a borrower defaults on an FHA (Federal Housing Administration) loan. When a homebuyer secures an FHA loan, they are typically required to pay MIP, which insures the entire loan amount. This means that if the borrower defaults and the property goes into foreclosure, the insurance compensates the lender for the loss, making it less risky for lenders to extend loans to buyers, especially those who may have lower credit scores or smaller down payments.

By insuring the whole loan rather than just a portion of it, MIP helps facilitate access to home financing for many borrowers who might otherwise be unable to secure a traditional mortgage. This comprehensive coverage is a key feature of FHA loans and is intended to promote homeownership among a diverse range of buyers.

The other options are not correct because MIP does not only cover down payments, interest amounts, or second mortgages specifically; rather, it covers the whole FHA loan to protect the lender from total loss in case of default.