Glossary

Mortgage Insurance Premium (MIP)

Also known as: MIP

The annual fee, calculated as a percentage of the outstanding loan balance and collected alongside principal and interest, that a borrower pays HUD in exchange for FHA mortgage insurance on a HUD-insured multifamily or healthcare loan.

MIP compensates HUD, and ultimately the federal government's insurance funds, for insuring the lender against loss, and it is priced categorically rather than deal-by-deal -- HUD publishes MIP rate schedules by program and project category, with market-rate transactions paying the highest rates and projects HUD designates as 'affordable,' based on the share of units subject to rent or income restrictions or covered by project-based rental assistance, or 'green,' built or renovated to a qualifying energy standard, receiving discounted rates as a deliberate policy incentive. Because MIP is paid from the same property cash flow as principal and interest, and HUD tests loan sizing against a minimum debt service coverage ratio, MIP must be included inside the debt service constant used for sizing -- a common underwriting error is to size the loan off the principal-and-interest constant alone and add MIP afterward, which overstates the achievable loan amount, sometimes materially. MIP rates, along with the affordability and green thresholds that determine which rate tier applies, are revised periodically through HUD Multifamily notices, so a rate assumed from a prior transaction should always be confirmed against the current notice in effect at the time of application.