Your Guide to HUD Mortgage Insurance Premiums
If you have a HUD multifamily loan or are considering one, you need to know about HUD MIPs. Find out current MIPs for HUD loans in our guide.
A mortgage insurance premium, or MIP, is a type of insurance policy provided for certain loans backed by the Federal Housing Administration or Department of Housing and Urban Development. HUD MIPs protect the lenders — and HUD — from losses that occur when a borrower defaults on mortgage payments.
MIPs are required for all FHA/HUD loans, including both single-family loans and multifamily financing used to acquire, refinance, or develop apartment buildings. This includes HUD’s incredibly advantageous 221(d)(4) construction loan as well as 223(f) loans, its most popular financing option for acquisitions and refinances.
These MIPs are set by the Federal Housing Administration and come in two variations: an upfront MIP and an annual mortgage insurance premium, or AMIP.
Upfront Mortgage Insurance Premium
The upfront mortgage insurance premium for HUD multifamily loans is currently 1%. This means that the borrower must pay a fee or premium of 1% of the loan principal when the loan closes. This is a one-time payment, but FHA multifamily loans also require annual payments, starting in the second year.
For example, if a multifamily investor buys an apartment building using $10 million of HUD financing, that means they would owe HUD $100,000 at closing, just to cover the MIP costs. After the first year, the borrower would need to provide annual MIPs, which are a bit lower — but still significant.
Upfront Mortgage Insurance Premium Ranges
Property Type | Typical Upfront MIP |
|---|---|
Market-rate multifamily property | 1.00% |
Affordable housing property | 1.00% |
Any multifamily property with Green MIP Reduction | 0.25% |
Annual Mortgage Insurance Premium
Annual MIPs start in the second year. While they are lower, they add up to more over time, as they are due every year of the loan’s term. For market-rate properties, the annual MIP is generally 0.60% to 0.65% of the mortgage principal, and it scales down depending on the complex’s affordability factors.
Annual MIPs for properties taking advantage of low-income housing tax credits are generally set at 0.45% of the principal per year.
One important thing to reiterate: HUD MIP calculations are based on the current loan’s principal. That means it will reduce as your loan amortizes.
For example, if your annual MIP is set at 0.60% on a loan with a $10 million outstanding principal balance in year two, you would need to pay $60,000. If the principal is brought down to $9.5 million in year three, your annual MIP would be $57,000. The lower your outstanding principal goes, the lower your mortgage insurance premium payments.
Annual Mortgage Insurance Premium Ranges
Property Type | Typical Annual MIP |
|---|---|
Market-rate multifamily property | 0.60% to 0.65% |
Affordable housing property | 0.45% |
Any multifamily property with Green MIP Reduction | 0.25% |
How Can I Reduce My MIP?
As you’ve seen above, MIP can be expensive for HUD loans. Depending on the loan and your property’s specifications, 1% in the first year is a hefty sum, as is 0.60% or so in subsequent years.
And you've probably also seen that mention of Green MIP Reductions in the tables. So let's get into that.
Reduce Your MIP With Energy Efficiency
There is one great way to lower your payments: HUD’s Green MIP Reduction Program. The program provides incentives to multifamily lenders who agree to reduce their mortgage insurance premiums in connection with energy efficiency investments.
Under this program, lenders can reduce their MIPs on HUD loans as long as they fund and manage green investments that meet HUD’s sustainability requirements. Basically, a property must get certified and hit a specific scoring standard within any one of a few programs, from LEED to Energy Star.
This isn’t a one-time certification, however. A property will need to be regularly recertified, regardless of which program they certify through initially. If a community fails to meet the standards, the MIP reduction could be taken away.
Some examples of energy-efficient improvements could be adding LED lighting, improved heating and cooling systems, or water-saving devices that meet HUD’s sustainability requirements.
The savings from the Green MIP Reduction Program can be significant. The typical annual HUD MIP is around 0.60%. With the reduction, this falls to 0.25%. And what’s more, the Green MIP Reduction Program can also be used to reduce the usually 1% upfront MIP in year one.
Let’s apply this to an example of a $7 million HUD 232(f) loan with an in-place standard MIP of 0.6%. That’s equal to $42,000 per year, or $3,500 each month. Reduce that to 0.25%, and your annual MIP becomes $17,500, or about $1,460 per month. That difference adds up fast.
Lower MIPs for Affordable Housing
Affordable housing properties benefit from better loan terms with HUD multifamily loans, and this holds true for mortgage insurance premiums as well. Annual MIPs are typically set at 0.45%, so long as a significant portion of the property is set aside as affordable housing.
Note that a loan on an affordable housing apartment complex that also meets the Green MIP Reduction Program benchmarks will have an annual MIP of 0.25% — it will not be lower based on affordability.
Conclusion
MIP is an important consideration when looking at HUD loans. It is a type of insurance that protects the lender from losses that occur when a borrower defaults. While upfront and annual MIPs are costs you must look at when exploring your loan options, there are ways to reduce them — and even without a reduction, HUD loans are still generally much less costly than other types of multifamily debt, even Fannie Mae and Freddie Mac loans.
Related Questions
What is a mortgage insurance premium?
- A mortgage insurance premium, or MIP, is a type of insurance policy required by the Federal Housing Administration or Department of Housing and Urban Development (HUD) to protect lenders from losses that occur when a borrower defaults on mortgage payments.
How can I reduce my MIP?
- HUD's Green MIP Reduction Program can help reduce MIP payments to 0.25% per year. The program provides incentives to multifamily lenders who agree to reduce their mortgage insurance premiums in connection with energy efficiency investments, such as LED lighting, improved heating and cooling systems, or water-saving devices.
What is the typical annual MIP for HUD loan-financed multifamily property?
- The typical annual MIP for market-rate HUD multifamily property is 0.60% to 0.65% of the mortgage principal. For properties taking advantage of low-income housing tax credits, the annual MIP is generally set at 0.45% of the principal per year.
What is the difference between FHA and HUD mortgage insurance premiums?
HUD and the FHA, or Federal Housing Administration, are two separate entities, but they share many things. HUD oversees residential and multifamily insurance programs, while the FHA primarily deals with residential lending for primary residences.
When it comes to HUD 232 Loans vs. HUD 232/223(f) Loans, there are some cons to consider. Mortgage insurance premiums (MIPs) are still required for HUD 232 Loans, and an FHA application fee of 0.30% of the entire loan amount is also required. Additionally, an FHA inspection fee of 0.50% of the loan amount is also required (though this can be funded with the loan balance). Lastly, like other HUD multifamily loans, the HUD 232 loan requires that a developer make regular payments into a replacement reserve fund.
How do I know if I qualify for HUD mortgage insurance premiums?
You may qualify for reduced mortgage insurance premiums if your project meets additional environmental or affordability restrictions. According to HUD 241(a) Supplemental Financing for HUD Multifamily Loans, borrowers should expect to pay an annual mortgage insurance premium of 0.95% of the principal loan amount. Certain projects may qualify for a reduced mortgage insurance premium, which could range from 0.25% to 0.35%.
According to HUD 232 Loans Require Mortgage Insurance (MIP), HUD 232 loans require borrowers to pay a Mortgage Insurance Premium (MIP), as both a one-time and an annual expense. MIP for these loans includes a 1% one time MIP assessment, payable at closing, and a 0.65% (65 basis points) annual MIP charge, paid each year for market rate properties.
What are the benefits of HUD mortgage insurance premiums?
HUD mortgage insurance premiums (MIPs) provide a number of benefits to borrowers. MIPs are a type of insurance that protects the lender from losses that occur when a borrower defaults. This helps to reduce the risk of lending and makes it easier for borrowers to access financing. Additionally, HUD loans are generally much less costly than other types of multifamily debt, even Fannie Mae and Freddie Mac loans.
At origination, 1% of the loan amount is due to HUD at closing from loan proceeds as the first-year MIP. It's 0.60% annually thereafter, with an adjustment to 0.45% for affordable properties.
What are the requirements for HUD mortgage insurance premiums?
The requirements for HUD mortgage insurance premiums depend on the type of loan. For HUD 232 loans, borrowers must pay an annual mortgage insurance premium of 0.95% of the principal loan amount. For HUD 241(a) loans, borrowers may qualify for a reduced mortgage insurance premium, which could range from 0.25% to 0.35% if the project meets additional environmental or affordability restrictions. For more information, please see HUD 232 Insurance Requirements and HUD 241(a) Supplemental Financing for HUD Multifamily Loans.
How do I apply for HUD mortgage insurance premiums?
You can apply for HUD mortgage insurance premiums by obtaining a HUD multifamily loan. The upfront mortgage insurance premium for HUD multifamily loans is currently 1%. This means that the borrower must pay a fee or premium of 1% of the loan principal when the loan closes. After the first year, the borrower would need to provide annual MIPs, which are a bit lower — but still significant. Borrowers should expect to pay an annual mortgage insurance premium of 0.95% of the principal loan amount. Certain projects may qualify for a reduced mortgage insurance premium, which could range from 0.25% to 0.35% if the project meets additional environmental or affordability restrictions. For more information, please visit this page and this page.
What are the current HUD mortgage insurance premiums rates?
The current HUD mortgage insurance premiums rates depend on the type of property. For market-rate multifamily properties, the typical annual MIP is 0.60% to 0.65%. For affordable housing properties, the typical annual MIP is 0.45%. Any multifamily property with Green MIP Reduction may qualify for a reduced mortgage insurance premium of 0.25%.
For HUD 241(a) Supplemental Financing for HUD Multifamily Loans, borrowers should expect to pay an annual mortgage insurance premium of 0.95% of the principal loan amount. Certain projects may qualify for a reduced mortgage insurance premium, which could range from 0.25% to 0.35% if the project meets additional environmental or affordability restrictions.
Sources: Your Guide to HUD Mortgage Insurance Premiums and HUD 241(a) Supplemental Financing for HUD Multifamily Loans