FHA mortgage insurance protects lenders against loan default and decreases risk for lenders. In the event of default, the FHA pays claims based on FHA criteria. HUD 232 and HUD 232/223(f) loans are both insured by the FHA.

For more information, please see What is FHA Mortgage Insurance? and FHA Mortgage Insurance in Relation to HUD 232 Loans.

FHA mortgage insurance works by protecting lenders against loan default and decreasing risk for lenders. In the event of default, the FHA pays claims based on FHA criteria. HUD 232 and HUD 232/223(f) loans are both insured by the FHA. For more information, please visit this page and this page.

FHA mortgage insurance provides lenders with protection against loan default and decreases risk for lenders. It also pays claims in the event of default based on FHA criteria. HUD 232 and HUD 232/223(f) loans are both insured by the FHA, which provides additional benefits such as:

• Lower down payment requirements
• Lower closing costs
• More flexible credit requirements
• Lower interest rates

For more information, please visit https://hud223a7.loan/glossary/what-is-fha-mortgage-insurance and https://hud232.loan/hud-232-glossary/fha-mortgage-insurance.

The drawbacks of FHA mortgage insurance include a required FHA application fee of 0.30% of the loan amount and a 0.50% FHA inspection fee, as well as a one-time mortgage insurance premium (MIP) at closing and payment of monthly MIPs throughout the duration of the loan. This applies to both HUD 241(a) Loans and HUD 232 Loans.

For HUD 232 Loans, an additional drawback is that the borrower/owner must make regular contributions to a replacement reserve fund. Additionally, owners must provide annual audited financial statements.

FHA mortgage insurance costs an upfront fee of 1% of the loan principal and an annual fee of 0.95% of the loan principal. Certain projects may qualify for a reduced mortgage insurance premium, which could range from 0.25% to 0.35%.

For example, if a multifamily investor buys an apartment building using $10 million of HUD financing, that means they would owe HUD $100,000 at closing, just to cover the MIP costs. After the first year, the borrower would need to provide annual MIPs, which are a bit lower — but still significant.

You can find more information about HUD 241(a) Supplemental Financing for HUD Multifamily Loans here and Your Guide to HUD Mortgage Insurance Premiums here.

To be eligible for FHA mortgage insurance, borrowers must meet the following requirements:

• Pay mortgage insurance premiums (MIPs)
• Pay an FHA application fee of 0.30% of the entire loan amount
• Pay an FHA inspection fee of 0.50% of the loan amount
• Pay for a variety of third-party reports, including environmental assessments

Source: HUD 232 Insurance Requirements and HUD 241(a) Loans