What is FHA Mortgage Insurance?
FHA mortgage insurance is a type of insurance backed by the Federal Housing Administration (FHA). It's designed to protect lenders from default risk on FHA loans.
FHA mortgage insurance premiums are required for all borrowers who take out an FHA loan, regardless of the amount of down payment they make.
How Does FHA MIP Work?
There are two types of mortgage insurance premiums for FHA loans: a one-time, upfront fee and a recurring annual fee.
Upfront FHA MIP
When you take out an FHA loan, your lender will collect an upfront mortgage insurance premium that's equal to 1.75% of the loan amount. This FHA loan MIP can be paid at closing or rolled into your monthly mortgage payment.
Annual FHA MIP
Be cautious though, as MIP isn't the only premium you'll pay with an FHA home loan. FHA loans also have annual fees in the form of loan-to-value (LTV) mortgage insurance premiums. Annual FHA MIP used to work like private mortgage insurance (PMI) on conventional loans. Once you had reached 22% equity, your annual MIP would automatically drop.
However, for FHA loans issued after 2013, the amount of time you will pay for mortgage insurance is no longer determined by your home equity. Instead, the duration of the annual FHA MIP largely depends on the size of your down payment.
If the down payment is less than 10%, borrowers are required to pay the annual MIP for the entire duration of the loan term. If you make a down payment for 10% or more, your annual FHA MIP will go away after 11 years.
How Much is the Annual MIP on FHA Loans?
Your rate for annual MIP will vary depending on the size, term, and loan-to-value ratio of your FHA loan. Most borrowers can expect to pay around 0.55% of the total loan amount in annual MIP in 2024.
This is a sizable decrease from previous years. Before March 2023, the typical annual MIP was 0.85%. This reduction saves the average FHA borrower hundreds of dollars a year in fees, helping make homeownership more affordable.
Annual MIP Chart for FHA Loans with 15+ Year Terms
| Loan Amount | Loan-to-Value Ratio | Annual MIP | How Long You’ll Pay |
|---|---|---|---|
| $726,200 or less | 90% or less | 0.50% | 11 years |
| $726,200 or less | 90%-95% | 0.50% | Entire mortgage term |
| $726,200 or less | 95% or more | 0.55% | Entire mortgage term |
| $726,200 or more | 90% or less | 0.70% | 11 Years |
| $726,200 or more | 90%-95% | 0.70% | Entire mortgage term |
| $726,200 or more | 95% or more | 0.75% | Entire mortgage term |
Annual MIP Chart for FHA Loans with 15-Year Terms or Less
| Loan Amount | Loan-to-Value Ratio | Annual MIP | How Long You’ll Pay |
|---|---|---|---|
| $726,200 or less | 90% or less | 0.15% | 11 years |
| $726,200 or less | 90% or more | 0.40% | Entire mortgage term |
| $726,200 or more | 78% or less | 0.15% | 11 years |
| $726,200 or more | 78%-90% | 0.40% | 11 years |
| $726,200 or more | 90% or more | 0.65% | Entire mortgage term |
Can You Remove FHA Mortgage Insurance?
Your origination date plays a large part in whether or not you can remove your MIP.
- July 1991 to December 2000: If your origination date falls between these two markers, you can’t cancel your FHA mortgage insurance premiums.
- January 2001 to June 3, 2013: MIP will be canceled once your loan-to-value ratio (LTV) is 78 percent or when your home equity is 22%.
- June 3, 2013, to present: Your MIP will only be canceled once your mortgage is paid in full. However, if you make a down payment of 10% or more, your MIP will be canceled after 11 years.
Additionally, you can explore refinancing to a conventional mortgage once you have 20% equity in your home.
At the end of the day, insurance premiums are a common part of many home loan options. Be sure to factor in MIP on FHA loans when determining your homebuying budget. If you’re set on using an FHA loan, it may be wise to save for a larger down payment (around 10%) to qualify for a lower monthly mortgage insurance premium payment.
