For those who are interested in multi-family financing, it is essential that they understand everything there is to know regarding FHA multi-family loans. Abbreviated and referred to as MIP, Mortgage Insurance Premium is a distinct feature connected to FHA Multi-family loans. The FHA or Federal Housing Administration is a division of the HUD or United States Department of Housing and Urban Development.
FHA was initially established to assist in reviving the housing marketing after the Great Depression. Its primary aim is to offer mortgage insurance on loans filed by lenders already approved by the FHA. Such approved lenders are typically private lenders or banks.
The Basics on FHA and HUD
It’s pretty easy to get overwhelmed or confused between HUD and FHA. In reality, it’s easy to differentiate these two. Bonneville Multifamily Capital notes that the FHA is allowed to insure both multi-family and single family property. For the multi-family commercial industry, the loans are usually referred to as HUD loans. Do note that HUD insures loans, but aren’t lenders. On the other hand, HUD (through FHA) makes sure that the loans achieve a definite standard, which will guarantee that a borrower is eligible for credit.
The Basics on MIP
You also have to realize that HUD doesn’t produce revenue from the interest obtained through the loan. Nevertheless, they will have to acquire a premium, which is the same as those offered by insurance companies.
In any case, the overall principle behind insurance is that many companies or individuals contribute some amount for protection against unexpected losses and accidents. Thus, they apply a similar principle when it comes to HUD insuring multi-family homes, which is why they created MIP.
With more awareness and knowledge regarding the nitty-gritty involved, you will be able to make the right decision no matter what case you face.