What type of mortgage insurance relates specifically to FHA loans?

The type of mortgage insurance that specifically relates to FHA loans is known as Mortgage Insurance Premium (MIP). This insurance is required for borrowers who take out loans insured by the Federal Housing Administration. MIP is essential because it protects the lender in case the borrower defaults on the loan. It is a distinct product from Private Mortgage Insurance (PMI), which is typically associated with conventional loans and is used when borrowers make a down payment of less than 20%.

MIP has specific characteristics, including being mandatory for the life of the loan or for a certain period depending on the down payment made. This insurance is important for facilitating access to mortgage financing for homebuyers with lower credit scores or smaller down payments, a key purpose of FHA loans. Understanding MIP is crucial for mortgage professionals, as it impacts the overall cost of the loan and borrowers' affordability.