Mortgage Insurance Premium (MIP) is an annual payment on a HUD mortgage, paid at closing, for each year of construction, and annually. For HUD 223(f) loans, MIP is 25 basis points for properties using a Green MIP Reduction, 65 basis points for market rate properties, 45 basis points for Section 8 or new money LIHTC properties, and 70 basis points for Section 220 urban renewal projects that are not Section 8 or LIHTC. For HUD 232 loans, MIP is 1% of the loan amount (due at closing) and 0.65% annually (escrowed monthly).
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.