What is an FHA mortgage insurance premium?

FHA mortgage insurance premiums are additional fees that all FHA loan borrowers pay upfront and over the duration of the loan, although there are some ways to remove mortgage insurance.

FHA MIPs don’t protect you as the borrower. Instead, they protect the lender in case you default. Because FHA loans are “insured” by the Federal Housing Administration (FHA), FHA mortgage insurance premiums go to the Mutual Mortgage Insurance Fund (MMIF). If you default on your mortgage, the agency compensates the lender for the outstanding balance using money in the fund.

Lenders consider FHA applicants riskier because they often have lower credit scores, make smaller down payments or both. MIP helps lenders mitigate the risk of providing mortgages to these applicants and makes the FHA program possible.

How much does FHA mortgage insurance cost?

As a borrower, you’ll pay two FHA mortgage insurance premiums: an upfront premium and annual premiums.

• FHA upfront mortgage insurance premium: 1.75% of the loan amount
• FHA annual MIP: Varies based on the size, term and loan-to-value (LTV) ratio of the loan

Upfront mortgage insurance premium

No matter how much you borrow with an FHA loan, the upfront mortgage insurance premium totals 1.75% percent of that amount. You can pay this premium all at once at closing or add it to your mortgage and pay it over time. If you choose the latter, you’ll pay interest on this cost, increasing your overall expense.

Annual mortgage insurance premium

FHA annual premiums range from 0.15% to 0.75% of the principal balance and are based on the loan amount, loan term and loan-to-value (LTV) ratio. You’ll pay this premium in installments each year with your monthly mortgage payment.

• FHA loans with terms longer than 15 years

  $726,200 or less

  LTV ratio	MIP	Duration of insurance payments
  90% or less	0.50%	11 years
  More than 90% and less than or equal to 95%	0.50%	Entire loan term
  More than 95%	0.55%	Entire loan term

  More than $726,200

  LTV ratio	MIP	Duration of insurance payments
  90% or less	0.70%	11 years
  More than 90% and less than or equal to 95%	0.70%	Entire loan term
  More than 95%	0.75%	Entire loan term

   

• FHA loans with terms of 15 years or less

  $726,200 or less

  LTV ratio	MIP	Duration of insurance payments
  90% or less	0.15%	11 years
  More than 90%	0.40%	Entire loan term

  More than $726,200

  LTV ratio	MIP	Duration of insurance payments
  78% or less	0.15%	11 years
  More than 78% and less than or equal to 90%	0.40%	11 years
  More than 90%	0.65%	Entire loan term

   

• FHA simple or streamline refinances

  Loan amount	LTV ratio	MIP	Duration of insurance payments
  Any	90% or less	0.55%	11 years
  Any	More than 90%	0.55%	Entire loan term

  Note: These premiums apply to FHA refinances closed on or before May 31, 2009. The MIP refinance terms for subsequent mortgages are the same as those on regular FHA loans.

Examples of FHA MIP payments

Let’s say you take out a 30-year FHA loan to buy a property with a sale price of $400,000. Your down payment amount will affect your principal balance in addition to how much you need to pay in MIP upfront and annually.

If you choose to make a 10% down payment — which means you have an LTV of 90% — you’ll only need to pay MIP for 11 years. This lowers your costs significantly, so try to make as large a down payment as possible to avoid a 30-year MIP commitment.

Can you avoid FHA mortgage insurance?

All FHA loans require mortgage insurance, either for the life of the loan or a set number of years. Still, there are ways to avoid or mitigate FHA mortgage insurance.

• Find down payment assistance: You might qualify for one or more down payment assistance programs to pair with an FHA loan. This could help boost your down payment to 10%, so you won’t pay MIP for the entire loan term.
• Borrow another type of mortgage: If you’re an eligible service member or buying in a qualifying rural area, you could get a VA loan or USDA loan, respectively, for no money down and with no mortgage insurance requirement.
• Refinance in the future: If you can’t avoid FHA mortgage insurance now, you might be able to refinance into a conventional loan without PMI later on.

Can you lower your FHA insurance premium?

It is not possible to lower the MIP amount on an existing loan. If you have an FHA loan, you will need to make the same MIP payment each month until you’ve paid off your mortgage.

If you qualify for a lower interest rate now than when you got the FHA loan, refinancing could result in a lower interest rate, payment and MIP. However, refinancing just for the lower MIP is usually not worth it.

Can you remove mortgage insurance on an FHA loan? 

It isn’t possible to remove MIP from your FHA loan. If you put down at least 10%, you’ll pay for 11 years. If you get a 30-year FHA loan and put down less than 10%, you’ll be paying MIP for as long as you have the loan. 

For FHA loans issued on or before June 3, 2013, there are slightly different guidelines. 

Frequently asked questions

• What is an annual FHA 203B mortgage insurance premium?

  An FHA 203B loan is another name for the standard FHA purchase loan. The annual mortgage premium depends on your loan amount, your loan term and your down payment, and it costs between 0.15 percent and 0.75 percent of the loan amount.

• Is FHA insurance tax deductible?

  No, FHA mortgage insurance is not tax deductible. Mortgage insurance premiums were tax deductible in the past, but this is no longer true.

• How does an FHA MIP refund work?

  If you refinance your existing FHA loan through an FHA Streamline Refinance, you can get a partial refund of your upfront MIP. The refund amount decreases the further away you get from the date you took out the original loan, and three years after you took it out, you’re no longer eligible for a refund.

Additional reporting by Emma Woodward