Why do FHA loans have that upfront MIP fee? Where does that go?

Where does the FHA upfront MIP go?

FHA loans charge an upfront mortgage insurance premium (MIP) that borrowers pay at closing—you want to know where that money goes. The upfront MIP goes directly to the Federal Housing Administration to fund the Mutual Mortgage Insurance Fund, which protects lenders when FHA borrowers default on their loans. This insurance system allows lenders to offer FHA loans with lower down payments and more flexible credit requirements because the government backs the loans.

The upfront MIP is typically 1.75% of your loan amount and gets rolled into your mortgage balance, so you don't pay it separately at closing. You'll also pay an annual MIP that's divided into monthly payments throughout the loan. Check your Loan Estimate to see exactly how much upfront MIP applies to your loan amount. The lender can walk you through how both the upfront and annual MIP work together to make your FHA loan possible.