Loan Officer Practice Exam 2025 – Comprehensive All-in-One Guide for Exam Success!

When dealing with FHA-insured loans, the Mortgage Insurance Premium (MIP) plays a critical role in protecting lenders against potential losses caused by borrower defaults. When the Loan-to-Value (LTV) ratio is greater than 90%, the MIP requirement is particularly stringent. In such cases, the MIP will generally remain for the life of the loan, meaning that the borrower must continue to pay this premium until the loan is fully paid off or refinanced.

This stipulation is important because it helps to ensure that lenders are compensated for the higher risk associated with loans that have a higher LTV ratio. Borrowers should be aware that even if they reach a point where they believe their home's value has significantly increased, and they may have a lower equity percentage, the MIP will not drop unless the LTV ratio was initially 90% or less.

Understanding this policy is crucial for both loan officers and borrowers, as it impacts long-term financial planning and the total cost of borrowing. In summary, for FHA loans with an LTV greater than 90%, the MIP will be required for the entire duration of the loan.