How is the mortgage insurance premium for a new FHA loan structured?

The mortgage insurance premium for a new FHA loan is structured such that it is paid both upfront and monthly. When an FHA loan is originated, borrowers are required to pay an upfront mortgage insurance premium (UFMIP). This premium is typically added to the total loan amount, which means it can be financed into the mortgage instead of being paid out of pocket at the time of closing.

In addition to the upfront payment, FHA loans also require ongoing monthly mortgage insurance premiums (MIP) for the duration of the loan. This monthly fee is calculated as a percentage of the loan amount and is paid alongside the mortgage payment each month. This structure ensures that the lender is protected in case of default on the loan, as the insurance covers a portion of the lender’s risk.

The other options do not accurately represent how FHA mortgage insurance works. For instance, the lender does not pay the mortgage insurance premium; it is the borrower's responsibility. The option regarding quarterly payments is incorrect because the premiums are not paid quarterly. Lastly, the idea that the premium cannot be added to the loan contradicts the common practice of financing the upfront mortgage insurance into the loan amount.