FHA Loan Mortgage Insurance Premium (MIP) Explained

FHA loans, backed by the Federal Housing Administration, allow borrowers to buy a home with as little as 3.5% down. However, they come with a mandatory Mortgage Insurance Premium (MIP) — regardless of how much you put down.

Two Types of FHA MIP

1. Upfront MIP (UFMIP)

This is a one-time fee of 1.75% of the loan amount, paid at closing. For a $200,000 loan, the UFMIP would be $3,500. It can be rolled into the loan balance.

2. Annual MIP

This is charged monthly and added to your mortgage payment. The rate depends on the loan term, LTV ratio, and loan amount. Rates typically range from 0.45% to 1.05% per year.

How Long Do You Pay FHA MIP?

For loans with down payments less than 10%, MIP is required for the entire loan term (30 years). For loans with 10% or more down, MIP lasts for 11 years.

FHA MIP vs. Conventional PMI

Unlike PMI on conventional loans, FHA MIP cannot be cancelled for most borrowers unless they refinance into a non-FHA loan. This is a key consideration when choosing between FHA and conventional loans.

Conclusion

FHA MIP is a significant cost of FHA loans. While FHA loans offer easier qualification, borrowers should factor in the long-term cost of MIP when deciding whether an FHA loan is right for them.