What type of premium is required when using an FHA loan for a single-family home?

When using an FHA loan for a single-family home, borrowers are required to pay both an upfront mortgage insurance premium (MIP) and an annual premium. The upfront premium, which is typically a percentage of the loan amount, can be financed into the loan itself, meaning it is added to the total loan balance and can be paid off over the term of the loan. This arrangement allows borrowers to avoid a significant out-of-pocket payment at closing.

In addition to the upfront premium, borrowers must also pay an annual mortgage insurance premium, which is calculated based on the remaining loan balance and is typically divided into monthly payments. This annual premium provides ongoing insurance for the lender in the event of default on the loan, ensuring that the lender is protected while the borrower is able to access the benefits of a lower down payment and more favorable loan terms associated with FHA loans.

The combination of an upfront premium that can be financed and an annual premium ensures that FHA loans remain accessible to a wide range of homebuyers, including those with lower credit scores or limited savings, while still providing necessary protections for lenders.