When applying for a 100% LoanToValue loan, make sure that you know the difference it payments between paying 1 loan and mortgage insurance vs having 2 loans and not paying mortgage insurance.

Mortgage Insurance Premium (MIP) refers to the first year PMI premium that would be collected at closing if the borrower selects the "Standard" renewal premium, not monthly.

It is insurance from FHA to the lender against incurring a loss on account of the borrower's default.

This insrance is in place to cover only the part of the loan that is more than 80% of the value of the home. For instance if you buy a home with no down payment then that would be considered a 100% LTV loan. If the mortgage is in the form of one loan then you would need insurance to cover the top 20% of the loan. This is because the Federal Goverment in this case is only backing 80% of the value of the home in the case of a foreclosure. The other 20% has be protected by either a self insured second loan at a higher interest rate or by the borrower paying for MIP.

Many Loan Officers will recommend a second mortgage or Home Equity Line of Credit to "piggyback" the first mortgage on loan amounts exceeding 80% loan to value. Structuring a loan this way will avoid having to obtain private mortgage insurance.

Depending on areas MIP may or may not make sense. In high appreciation areas you may be able to get the MIP released after a short time of 12-24 months and in this case it may be worth it to take a loan with MIP. Whereas in low appreciation areas you may want to discuss an 80/20 or 80/10 loan to avoid paying the mortgage insurance for a long period of time.

The mortgage insurance premium is not state or federal tax deductible.