FHA's Annual Mortgage Insurance Premium (MIP) will remain in place throughout the life of the loan if what condition is met?

The correct answer is based on the Federal Housing Administration's (FHA) guidelines regarding the Annual Mortgage Insurance Premium (MIP). For FHA loans, if the beginning loan balance is higher than 90% of its appraised value, the MIP must be maintained for the life of the loan. This condition stems from the increased risk to the lender associated with higher loan-to-value (LTV) ratios; therefore, the FHA requires ongoing mortgage insurance to protect against potential defaults for borrowers with a higher LTV.

Maintaining MIP for the life of the loan serves to safeguard lenders and, by extension, the FHA, particularly when the initial equity in the home is lower, indicating a higher level of risk. If the equity were to increase (e.g., through appreciation or payments reducing the principal), borrowers can eventually apply for a cancellation of MIP, but this is contingent upon meeting certain requirements.

In contrast, the other options do not accurately reflect the conditions set by the FHA for the lifelong requirement of MIP. High credit scores or shorter loan terms do not directly influence the decision to maintain MIP for the loan's duration. Moreover, consistent payments for five years do not guarantee the elimination of MIP if the initial loan amount was above