FHA Mortgage Insurance: How It Works and How Much It Costs
If you’re approved for an FHA loan, you’re required to pay for FHA mortgage insurance. The insurance protects FHA-approved lenders against losses if you default on your mortgage payments. Understanding how it works and what it costs can help you decide if an FHA mortgage is the best option for you.
Key takeaways
- FHA loans require both upfront and ongoing mortgage insurance premiums.
- FHA mortgage insurance is generally more expensive than private mortgage insurance (PMI) on a conventional loan, and it’s required regardless of your down payment amount.
- Premiums are based on various factors, including your loan amount and loan term.
What is FHA mortgage insurance?
FHA loans, which are mortgages insured by the Federal Housing Administration (FHA), require mortgage insurance to guarantee a lender’s losses if a homeowner defaults on an FHA loan.
The insurance covers FHA-approved lenders and FHA loans on single-family homes, multifamily properties, manufactured homes, condos and co-ops. There are two types of FHA loan insurance payable on an FHA loan: the upfront mortgage insurance premium (UFMIP) and the annual mortgage insurance premium (MIP).
How does FHA mortgage insurance work?
FHA-approved lenders are required to disclose the cost of FHA mortgage insurance when they provide a loan estimate. Both the upfront and annual mortgage insurance premiums must be collected to insure an FHA mortgage, but you’ll pay each type differently.
The upfront mortgage insurance premium (UFMIP) works as follows:
- It’s charged in a lump sum equal to 1.75% of your loan amount
- It’s typically financed into your mortgage amount
- It can be paid in cash, as long as the amount is paid in full (partial cash payments aren’t allowed)
- It isn’t refundable unless you replace your current FHA loan with a new FHA loan
- It’s required regardless of your down payment amount or credit score
The annual (or periodic) mortgage insurance premium (MIP) works as follows:
- The premium amount is charged annually based on the following factors:
- Your loan-to-value (LTV) ratio
- Your base loan amount
- Your mortgage repayment term
- The premium is divided by 12 and charged in monthly installments that are added to your monthly mortgage payment
- The premium is required regardless of your down payment or home equity amount
- The monthly premium is the same regardless of your credit score
You won’t need to know the formula for calculating FHA mortgage insurance on your loan — your lender has mortgage software that’ll crunch the numbers for you. That said, it doesn’t hurt to have a basic understanding of how it works.
The examples below assume you’re borrowing $300,000 after making a minimum 3.5% down payment on a 30-year fixed-rate FHA mortgage.
| How to calculate your UFMIP | The math |
| Multiply your loan amount by 1.75% (0.0175) The result is your UFMIP | $300,000 x 0.0175 = $5,250 |
| How to calculate your MIP | The math |
| Multiply the amount you’re borrowing by 0.55% (0.0055) | $300,000 x 0.0055 = $1,650 |
| Divide this figure by 12 The result is your monthly MIP | $1,650/12 = $137.50 |
How much does FHA mortgage insurance cost?
The cost of the UFMIP for most purchase and refinance loans is 175 basis points, which is 1.75% of your loan amount. UFMIP is typically financed into your loan amount over the loan term, but can be paid entirely in cash upfront.
The cost of annual MIP ranges between 15 and 75 basis points, which is 0.15% to 0.75% of your loan amount. The MIP is charged annually, divided by 12 and added to your monthly payment.
The cost of FHA mortgage insurance varies based on:
- Your LTV ratio. Lenders divide your loan amount by your home’s value to determine your LTV ratio. The more you borrow, the higher the LTV ratio.
- The loan term. Your loan term is the length of time you choose to repay the loan, and is typically 15 or 30 years for FHA loans.
- The loan amount. Each year, new FHA loan limits are set based on the direction of home prices in the prior year. The 2025 maximum for a single-family home in most parts of the country is $524,225. Borrowers in higher-cost areas may be eligible for higher loan amounts, up to a maximum of $1,209,750.
- The loan purpose. Current FHA borrowers may be eligible for lower MIP premiums if they qualify for an FHA streamline refinance. Otherwise, MIP premiums for purchases and most refinance types are the same.
The tables below show the FHA MIP rates based on the factors outlined above.
FHA MIP for mortgage term of more than 15 years*
| Base loan amount | LTV ratio | MIP charged (percentage of loan amount) | How long you’ll pay it |
|---|---|---|---|
| $726,200 or lower | Up to 90% 90% to 95% Above 95% | 0.50% 0.50% 0.55% | 11 years Life of loan Life of loan |
| More than $726,200 | Up to 90% 90% to 95% Above 95% | 0.70% 0.70% 0.75% | 11 years Life of loan Life of loan |
*Applies to all purchases and refinances except FHA streamlines, FHA refinance loans closed on or before May 31, 2009 and Hawaiian Home Lands loans.
FHA MIP for mortgage term of 15 years or less*
| Base loan amount | LTV ratio | MIP charged (percentage of loan amount) | How long you’ll pay it |
|---|---|---|---|
| $726,200 or lower | Up to 90% Above 90% | 0.15% 0.40% | 11 years Life of loan |
| More than $726,200 | Up to 78% 78% to 90% Above 90% | 0.15% 0.40% 0.65% | 11 years 11 years Life of loan |
*Applies to all purchases and refinances except FHA streamlines, FHA refinance loans closed on or before May 31, 2009 and Hawaiian Home Lands loans.
FHA MIP for FHA streamline refinances
| Base loan amount | LTV ratio | MIP charged (percentage of loan amount) | How long you’ll pay it |
|---|---|---|---|
| All | Up to 90% Above 90% | 0.55% 0.55% | 11 years Life of loan |
FHA MIP vs. PMI: What’s the difference?
Most first-time homebuyers choose an FHA loan or conventional loan to take advantage of low down payment options. Private mortgage insurance (PMI) is required on a conventional mortgage with a down payment below 20%.
There are some major differences between FHA MIP and PMI that you’ll need to know to help you decide which loan type is right for you.
| FHA MIP | CONVENTIONAL PMI |
|---|---|
| Not impacted by credit scores | Impacted by credit scores |
| Required regardless of down payment amount | Not required with a 20% down payment or higher |
| Allows for scores as low as 500 | Requires a minimum 620 credit score |
| Must be paid for the life of your loan if you make the minimum 3.5% down payment | Can be canceled once 20% equity is verified, regardless of your down payment amount |
Learn more about FHA loans versus conventional loans.
How to avoid FHA mortgage insurance
1. Choose a different loan type
One way to avoid paying FHA mortgage insurance is to select another home loan type. Your options include:
- Conventional loans. Conventional loans don’t require mortgage insurance. However, you’ll have to pay PMI if you put down less than 20%.
- VA loans. If you’re a military member, veteran or surviving spouse, you may qualify for a VA loan. VA loan borrowers don’t have to pay for mortgage insurance. However, there is a VA funding fee, which is between 1.25% and 3.30%.
- USDA loans. You may qualify for a USDA loan if you’re buying a home in a rural area. USDA loans don’t require mortgage insurance, but you’ll pay an upfront guarantee fee worth 1% of your loan amount and an annual guarantee fee worth 0.35% of your loan amount.
2. Save for a bigger down payment
Saving up for a larger down payment won’t help you avoid FHA mortgage insurance, but it can shorten the amount of time you’ll need to pay it. MIP will go away after 11 years if you put down at least 10% on a FHA loan. If, however, you put down less than 10%, you’ll need to pay MIP for the life of the loan.
Read more about how to save for a house.
Frequently asked questions
No, FHA loan insurance doesn’t provide coverage if you die. In this case, your mortgage would need to be handled by your estate. Some homeowners purchase mortgage protection insurance to pay off their remaining loan balance when they die.
FHA mortgage insurance premiums aren’t currently tax-deductible.
The most common way to remove monthly FHA mortgage insurance is to refinance your FHA loan to a conventional loan. However, if you make at least a 10% down payment when you buy your home with an FHA loan, the annual MIP will drop off automatically after 11 years.