Commercial Mortgage Insurance Is Generally Not Required
If you’re taking out or about to take out a commercial real estate loan, you may be asking yourself whether you will need to pay commercial mortgage insurance. In most cases, the answer is no. In contrast to home mortgage borrowers, which generally need to pay private mortgage insurance (PMI), commercial borrowers do not, with the exception of those taking out HUD/FHA multifamily loans.
HUD requires borrowers using their HUD multifamily loans to pay a mortgage insurance premium (MIP), which is provided by HUD to protect the lender against loan default. In essence, if the borrower defaults on their loan, HUD will reimburse them for part or all of the outstanding loan amount.
HUD multifamily loans that require the payment of mortgage insurance premiums include the HUD 221(d)(4) loan for multifamily construction and substantial rehabilitation, the HUD 223(f) loan for multifamily purchases and refinances, the HUD 232 loan for senior living construction and substantial rehabilitation, the HUD 232/223(f) loan for senior living purchases and refinances, and the HUD 223(a)(7) loan intended for the refinancing of multifamily and senior living properties already carrying HUD multifamily debt.
What are the MIP Requirements for HUD Multifamily Loans?
HUD multifamily loan MIP requirements include:
A 1% upfront MIP charge at loan closing.
0.65% per year for market-rate properties.
0.45% per year for Section 8 and LIHTC (low-income housing tax credit) properties.
0.70% per year for Section 220 urban renewal projects (those that aren't already Section 8.
0.25% per year for properties that are eligible for a Green MIP reduction, which requires an Energy Star Statement of Energy Design Intent (SEDI) study to be performed with a resulting score of 75+. Properties must be recertified by SEDI each year to continue to stay eligible for the Green MIP reduction.