How is the FHA mortgage insurance structure (upfront and annual) typically configured?

• A. Upfront MIP is paid at closing or financed, plus annual MIP paid monthly based on loan terms and loan-to-value.
• B. Upfront MIP is paid only if the borrower defaults; there is no annual MIP.
• C. MIP is charged only for certain property types and is not based on LTV.
• D. FHA loans do not require mortgage insurance.

Answer: (B)

FHA mortgage insurance is two-part: an upfront premium paid at closing (or financed into the loan) and an ongoing annual premium that is paid monthly as part of the mortgage payment. The upfront MIP reduces the lender’s risk from the start, while the annual MIP provides ongoing protection and is calculated each month based on the loan amount, term, and the loan-to-value ratio. This means you don’t wait for a default to pay insurance—the monthly premium is a standard part of the loan for the life or term of the loan, depending on the program details. The idea is that the loan carries both an initial charge at closing and a recurring monthly charge, rather than relying solely on default-based coverage. FHA loans do require mortgage insurance, and the amount and timing depend on the specific loan details, not on property type alone.