What does MIP stand for?

Mortgage Insurance Premium, commonly abbreviated as MIP, refers to the insurance that protects lenders against losses when borrowers default on their mortgage loans, especially in the context of Federal Housing Administration (FHA) loans. MIP is typically required for loans with less than a 20% down payment, as it provides a safeguard to lenders, allowing them to offer loans to a broader range of borrowers, including those with lower credit scores or higher debt-to-income ratios.

Understanding this term is critical in the residential mortgage industry, as it directly impacts the cost of borrowing for an FHA loan and influences a borrower's monthly mortgage payments. The amount paid in MIP can vary based on the loan amount, the length of the loan, and the loan’s terms, affecting the overall affordability and accessibility of homeownership for many individuals.