A mortgage insurance premium (MIP) is required on all FHA loans.
There are two types of insurance premiums you’ll need to budget for. Annual MIP and an upfront mortgage insurance premium (UFMIP) of 1.75% of the loan amount.
This article takes an in-depth look at FHA mortgage insurance, rates, how long MIP is required, and alternative loan options with lower premiums.
Get Pre-Approved for a Home Loan
FHA loans are guaranteed by the Federal Housing Administration which reduces the risk for mortgage lenders allowing them to lower their credit score and down payment requirements. The FHA program is funded by mortgage insurance premiums.
• Down payment of 10% or more MIP duration is 11 years |
• Down payment of less than 10% MIP is required for the life of the loan |
The MIP rate depends on the down payment, loan amount, and loan term. For most FHA borrowers with 3.5% down the MIP rate is 0.85%.
$625,500 Loan Amount and Lower | |||
Down payment | MIP rate | MIP duration | |
30-year loan | <10% >10% | 0.85% 0.80% | Life of the loan 11 years |
15-year loan | >10% | 0.45% 0.70% | Life of the loan 11 years |
$625,500 Loan Amount and higher | |||
Down payment | MIP rate | MIP duration | |
30-year loan | <10% >10% | 1.05% 1.00% | Life of the loan 11 years |
15-year loan | <10% >10% | 0.95% 0.70% | Life of the loan 11 years |
Speak to FHA lenders and check today’s rates
Annual Mortgage Insurance Premium
Annual MIP is included in your monthly mortgage payment and goes into an escrow account set up by your loan servicer. You must carry MIP for the life of the loan if your down payment is less than 10%.
You will pay an annual mortgage insurance premium between .45 and 1.05% basis points depending on the loan-to-value ratio and loan amount.
This is actually a great deal; the FHA mortgage insurance premium used to be over 1%. However, it was recently lowered per Mortgagee Letter 2015-01.
In addition to annual MIP, FHA loans also require an upfront mortgage insurance premium of 1.75% of the loan amount. The upfront mortgage insurance premium (UFMIP) goes into an escrow account and paid to The Department of Housing and Urban Development (HUD) at closing. In some cases, you may be able to roll UFMIP into your loan.
Upfront mortgage insurance premium by loan type
Loan Type | Upfront Fee |
FHA | 1.75% |
FHA 203k | 1.75% |
USDA | 1.00% |
VA | 2.15% |
Conventional | Not Required |
MIP Refunds
If you refinance your FHA mortgage with an FHA streamline refinance or an FHA cash-out refinance within the three years of closing, you will receive a refund for a portion of the upfront premium.
Upfront MIP Refund Chart
Months after closing | Refund | Months after closing | Refund | Months after closing | Refund |
1 | 80% | 13 | 56% | 25 | 32% |
2 | 78% | 14 | 54% | 26 | 30% |
3 | 76% | 15 | 52% | 27 | 28% |
4 | 74% | 16 | 50% | 28 | 26% |
5 | 72% | 17 | 48% | 29 | 24% |
6 | 70% | 18 | 46% | 30 | 22% |
7 | 68% | 19 | 44% | 31 | 20% |
8 | 66% | 20 | 42% | 32 | 18% |
9 | 64% | 21 | 40% | 33 | 16% |
10 | 62% | 22 | 38% | 34 | 14% |
11 | 60% | 23 | 36% | 35 | 12% |
12 | 58% | 24 | 34% | 36 | 10% |
How to get rid of MIP on FHA Loans
You can avoid paying mortgage insurance after paying down your loan-to-value ratio on your FHA loan to 78% by refinancing your FHA loan to a conventional loan.
Contact your lender and ask them if you’re eligible to have your annual insurance premium removed.
If you put less than 10% down on an FHA loan you will have to pay the MIP for the life of the loan. You can remove MIP after 11 years if your down payment is higher than 10%.
Borrowers who put down 10% or less, the PMI is .85%. If a borrower puts down more than 10%, then the MIP goes down slightly to .80%.
For example, if you buy a $200,000 home and put in a 3.5% downpayment.
The LTV is 96.5%, so you have to pay a mortgage insurance premium of .85%, roughly $1700 per year. You can figure the amount you will have to pay for mortgage insurance using the FHA MIP chart below.
How to avoid paying Mortgage Insurance?
If you want to get a mortgage without having to carry mortgage insurance you will need to be a veteran, have 20% down, or get a piggyback loan. Other types of government home loans such as USDA loans have an MIP fee of just 0.35% which is half of what it is on FHA loans.
Conventional Loans
You can avoid paying mortgage insurance by getting a conventional loan with a 20% downpayment. If your down payment is less than This is the ideal scenario. However, most people do not have that kind of cash lying around.
Piggyback Loans
Another option is a piggyback 80-10-10 loan. This is where you put 10% down, get a loan for 80% of the purchase price, and get a 10% second mortgage loan, which would allow you to avoid paying PMI.
Some lenders offer an 80-10-10 piggyback loan. You need a 10% downpayment and would receive a loan for 80% of the home price and another for 10%.
VA Loans
If you’re a veteran, you can get a VA loan, which not only doesn’t require any mortgage insurance or a down payment. There is a one time upfront VA funding fee of 2.15%.
USDA Loans
If you live in a rural area, you can get a USDA loan with cheaper mortgage insurance rates than FHA loans do. The FHA rate is 0.85% of the loan amount compared to the USDA MIP rate of just 0.35%. On a $250,000 loan, mortgage insurance on a USDA loan is $100 less a month than FHA loans.
