Nationwide Mortgage Licensing System (NMLS) Practice Exam

Which loan type requires a Mortgage Insurance Premium?

1. FHA loan

2. VA loan

3. Conventional loan

4. Jumbo loan

The correct answer is: FHA loan

A Mortgage Insurance Premium (MIP) is specifically associated with Federal Housing Administration (FHA) loans. When borrowers take out an FHA loan, which is designed to help lower-income and first-time homebuyers access the housing market, they are required to pay this insurance premium. The MIP provides lenders with protection against losses that may occur if the borrower defaults on the mortgage. FHA loans are notable for their lower down payment requirements compared to conventional loans, making them an attractive option for many buyers. The MIP consists of an upfront cost, typically rolled into the loan, as well as an ongoing monthly fee. This feature is essential in allowing borrowers who may otherwise struggle to secure financing to purchase homes. In contrast, VA loans do not require mortgage insurance, as they are backed by the Department of Veterans Affairs and have different funding mechanisms to protect lenders. Conventional loans may require private mortgage insurance (PMI) if the borrower puts down less than 20% but do not have a Mortgage Insurance Premium structure like FHA loans. Jumbo loans, which exceed the conforming loan limits, similarly do not require MIP. Therefore, the designation of requiring Mortgage Insurance Premium is unique to FHA loans.