FHA Mortgage Insurance (MIP) Explained — What It Costs and How Long You Pay It
FHA mortgage insurance is one of the most important costs to understand before choosing an FHA loan. It adds to your monthly payment and affects your long-term financial picture. Here’s a complete breakdown.
Why FHA Requires Mortgage Insurance
FHA loans are insured by the government. In exchange for backing your loan, the FHA charges borrowers a mortgage insurance premium (MIP). This fee goes into HUD’s Mutual Mortgage Insurance fund, which pays lenders when borrowers default. Without this insurance, lenders couldn’t offer the flexible terms the FHA program provides.
Two Types of MIP
1. Upfront Mortgage Insurance Premium (UFMIP)
- Amount: 1.75% of your base loan amount
- When paid: At closing — most borrowers roll it into the loan
- Example: $500,000 base loan × 1.75% = $8,750 UFMIP
If you refinance to another FHA loan within 3 years, you may receive a partial UFMIP refund (declining from 80% in month 1 to 10% in month 36).
2. Annual Mortgage Insurance Premium (Monthly MIP)
Paid monthly. The rate depends on your loan term, loan amount, and LTV ratio.
| Loan Amount | LTV | Annual MIP Rate (30-yr loan) |
|---|---|---|
| ≤ $726,200 | ≤ 90% | 0.50% |
| ≤ $726,200 | 90.01–95% | 0.50% |
| ≤ $726,200 | > 95% | 0.55% |
| > $726,200 | ≤ 90% | 0.70% |
| > $726,200 | 90.01–95% | 0.70% |
| > $726,200 | > 95% | 0.75% |
How Long Do You Pay MIP?
- Down payment less than 10% (LTV > 90%): MIP continues for the full loan term
- Down payment 10% or more (LTV ≤ 90%): MIP is cancelled after 11 years
Practical Takeaways
- UFMIP is 1.75% of loan amount — usually rolled in
- Monthly MIP ranges from 0.50%–0.75% for most California buyers on a 30-year loan
- Less than 10% down means MIP for the life of the loan
- Putting 10% or more down limits MIP to 11 years