FHA Mortgage Insurance Explained
FHA mortgage insurance has two parts: an upfront premium of 1.75% of the base loan, which can be financed, and an annual premium of roughly 0.50% to 0.75% of the loan per year on typical 30-year loans, billed monthly. With less than 10% down, the annual premium lasts for the life of the loan. With 10% or more down, it lasts 11 years.
Key Takeaways
- Upfront premium: 1.75% of the base loan, typically added to the loan amount.
- Annual premium: roughly 0.50% to 0.75% per year on typical 30-year loans, depending on loan amount and down payment.
- Duration: life of the loan under 10% down; 11 years at 10% or more down.
- The usual ways out are refinancing into a conventional loan or paying off the loan, selling, or reaching the 11-year mark.
What is FHA mortgage insurance?
FHA mortgage insurance protects the lender if you default. You pay for it, but it does not protect you. It is the trade-off that allows FHA lenders to accept lower credit scores and smaller down payments. FHA calls it MIP (mortgage insurance premium). It is different from private mortgage insurance (PMI) on conventional loans.
What is the upfront premium (UFMIP)?
The upfront mortgage insurance premium is 1.75% of the base loan amount. Most borrowers finance it, which means it is added to the loan balance rather than paid at closing. You can also pay it in cash. Financing it means you pay interest on it over time.
What is the annual premium?
The annual premium is divided into 12 monthly payments and collected with your mortgage payment. The rate depends on your loan amount, loan term and down payment. On typical 30-year loans, expect roughly 0.50% to 0.75% of the loan per year. We confirm the exact figure for your loan at quote time.
How long do I pay FHA mortgage insurance?
| Down payment | Annual MIP lasts |
|---|---|
| Less than 10% | Life of the loan |
| 10% or more | 11 years |
The upfront premium is paid once. The difference in duration is a big reason a larger down payment can make FHA more attractive.
What does FHA mortgage insurance cost in California?
Scenario A: 3.5% down. Down payment: $24,500 ($700,000 x 0.035). Base loan: $675,500. Upfront premium: $11,821.25 ($675,500 x 0.0175). Total loan if financed: $687,321.25. Annual premium at 0.50% to 0.75% of the base loan: about $3,377.50 to $5,066.25 in year one, or roughly $281 to $422 a month. Because you put down less than 10%, this lasts for the life of the loan.
Scenario B: 10% down. Down payment: $70,000. Base loan: $630,000. Upfront premium: $11,025 ($630,000 x 0.0175). Total loan: $641,025. Annual premium at 0.50% to 0.75%: about $3,150 to $4,725 in year one, or roughly $263 to $394 a month, ending after 11 years.
These are illustrations, not quotes. The annual premium is recalculated on the declining balance, so it falls slightly over time.
Notice that a bigger down payment lowers the loan, lowers the upfront premium and shortens the time you pay the annual premium.
How do I get rid of FHA mortgage insurance?
Option 1: Refinance to a conventional loan
This is the most common route. Once your loan balance is 80% or less of your home’s value, a conventional loan does not require PMI. The value can rise from appreciation, repayment of principal or both. You will need to qualify, usually with a score of 620 or higher, and pay closing costs, which are often 2% to 5% of the loan. Calculate the break-even before you decide: closing costs divided by monthly savings. See refinancing your mortgage.
Option 2: Reach the 11-year mark
If you put down 10% or more, the annual premium ends after 11 years.
Option 3: Sell or pay off the loan
Selling the home or paying off the balance ends the insurance. If you sell, the FHA loan can also be assumed by a qualified buyer, with lender approval.
Can I get a refund of the upfront premium?
In some cases a partial refund may be available when you refinance from one FHA loan into another soon after, or when you pay the loan off. Ask your loan officer, since the rules are specific.
How does FHA MIP compare with conventional PMI?
Conventional PMI varies widely, typically from roughly 0.3% to 1.5% of the loan per year, based on your credit score and down payment. Borrower-paid PMI can be requested off at 80% loan-to-original-value and ends automatically at 78% of the scheduled balance. Strong credit often means cheaper PMI than FHA MIP, while lower scores can make FHA cheaper. Read FHA vs. conventional: which costs less? and conventional loans and mortgage insurance.
Where to read more
See the FHA MIP program guide, FHA loan requirements, the cons of an FHA loan and the FHA loans chapter.
At Lendia, we show you the full cost
At Lendia, we show your monthly payment with MIP included, then compare it with conventional PMI so you can choose with real numbers. Contact us or get a rate quote now. Rates and terms depend on your situation; approval requires qualification.
Frequently Asked Questions
Can I pay the FHA upfront premium in cash?
Yes. Most borrowers finance it, but you can pay it at closing to keep your loan balance lower.
Does FHA mortgage insurance ever go away?
Yes. It ends after 11 years if you put down 10% or more. With less than 10% down, it generally stays for the life of the loan unless you refinance or pay off the loan.
Is FHA MIP tax deductible?
Tax treatment can change. Ask a tax professional.
Is FHA mortgage insurance higher than PMI?
It depends. With strong credit, PMI is often less. With lower credit scores, PMI can cost more than FHA MIP.
Do I pay MIP on a streamline refinance?
Yes, FHA loans carry mortgage insurance premiums. See FHA streamline refinance requirements.
Does mortgage insurance protect me if I lose my job?
No. It protects the lender, not the borrower.
Talk to a Licensed Lendia California Loan Officer
At Lendia, we review your situation and show you the programs you qualify for.