What type of loan requires Mortgage Insurance Premium (MIP)?

The type of loan that requires a Mortgage Insurance Premium (MIP) is the FHA loan. This form of insurance is intended to protect lenders in case of default by the borrower. FHA loans are primarily designed for low to moderate-income borrowers who may have lower credit scores than those typically accepted for conventional loans. The MIP is applicable regardless of the down payment amount and remains for a specific period depending on the loan-to-value ratio at the time of origination.

In contrast, conventional loans may require Private Mortgage Insurance (PMI) when the down payment is less than 20%, but they do not require MIP. VA loans do not require mortgage insurance premiums as they are backed by the Department of Veterans Affairs, and USDA loans do require a form of mortgage insurance but differ from MIP used in FHA loans. Therefore, the necessity of MIP is distinctive to FHA loans, making them unique in their insurance requirements.