The mortgage insurance premium (MIP) is what FHA charges to insure your loan, and every FHA borrower pays it. It comes in two parts: an upfront premium of 1.75% of the base loan, almost always financed, and an annual premium split into your monthly payments. That insurance is what allows FHA to approve buyers with 3.5% down and a 580 score.
FHA's MIP rates on a 30-year loan
| Down payment | Loan-to-value | Upfront MIP | Annual MIP | Annual MIP lasts |
|---|---|---|---|---|
| Less than 5% | Above 95% | 1.75% | 0.55% | Life of the loan |
| 5% to under 10% | Above 90% up to 95% | 1.75% | 0.50% | Life of the loan |
| 10% or more | 90% or less | 1.75% | 0.50% | 11 years |
Loan-to-value (LTV) is the base loan divided by the price or appraised value, whichever is lower. Because credit score plays no part in the premium, FHA's 0.55% often beats a Conventional PMI quote for buyers in the low 600s, where private mortgage insurance can run near 1.50% a year.
A worked comparison at 3.5% and 10% down
On a $300,000 home with 3.5% down, the base loan is $289,500. The upfront MIP is $5,066.25, added to the loan. The annual MIP is 0.55% of $289,500, or $1,592.25 a year, which comes to $132.69 a month.
Put 10% down on the same home and the base loan drops to $270,000. Upfront MIP falls to $4,725, and the annual premium drops to 0.50%, or $1,350 a year ($112.50 a month). Because the LTV is 90%, that premium stops after 11 years.
FHA refigures the annual premium each year on the average balance, so the monthly amount slips a little lower every year as the loan is paid down.
How long do you pay FHA MIP?
With less than 10% down, annual MIP runs as long as the FHA loan does. With 10% or more down, it ends after 11 years. The upfront premium is a one-time charge either way.
Most FHA homeowners who want MIP gone refinance into a Conventional loan once the balance is 80% of the home's value or less. At that point a Conventional loan carries no mortgage insurance at all. Monthly payments and any rise in the home's value both count toward reaching that 80%.
The mortgage payment calculator shows MIP on its own line at your price and down payment. To see whether FHA's premium or Conventional PMI costs less at your credit score, call AAA Capital Funding at 888-601-8344.