Mortgage insurance, also known as MIP or Mortgage Insurance Premium, is an important part of the FHA loan process. In this article, we'll discuss what FHA loan MIP is and how it impacts your monthly mortgage payment.
*Update: FHA MIP is dropping 30 basis points (bps) starting March 20th, 2023, making homeownership more affordable for all.
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. With other mortgage types, such as conventional loans, MIP goes away after you own 20% equity in the home. The mortgage insurance premium can be paid in a lump sum or it can be rolled into the loan and paid over time.
How Does FHA MIP Work?
When you take out an FHA loan, your lender will collect a one-time upfront mortgage insurance premium that's equal to 1.75% of the loan amount. FHA loan MIP can be rolled into the mortgage, meaning your monthly mortgage payment will also include the fee.
Be cautious though, as MIP isn't the only premium you'll pay with an FHA home loan. Loan-to-Value (LTV) mortgage insurance premiums are an annual fee based on the size and term of your home.
How Much is the Annual MIP on FHA Loans?
The annual MIP for FHA loans is 0.55%, which is a sizable decrease from previous years. Before March 2023, the annual MIP was 0.85%. This change in law will save FHA borrowers a good $800 a year in fees, which will help homeownership become more affordable.
FHA MIP Chart for 15 Plus Year Terms
| Mortgage Amount | Loan-to-Value Ratio | New MIP (bps) | Old MIP (bps) | Duration |
|---|---|---|---|---|
| Less than or equal to $726,200 | Less than or equal to 90% | 50 | 80 | 11 years |
| Less than or equal to $726,200 | 90%-95% | 50 | 80 | Mortgage term |
| Less than or equal to $726,200 | Greater than 95% | 55 | 85 | Mortgage term |
| Greater than $726,200 | Less than 90% | 70 | 100 | 11 years |
| Greater than $726,200 | 90%-95% | 70 | 100 | Mortgage term |
| Greater than $726,200 | Greater than 95% | 75 | 105 | Mortgage term |
FHA MIP Chart for 15 Year or Less Terms
| Mortgage Amount | Loan-to-Value Ratio | New MIP (bps) | Old MIP (bps) | Term Duration |
|---|---|---|---|---|
| Less than or equal to $726,200 | Less than or equal to 90% | 15 | 45 | 11 years |
| Less than or equal to $726,200 | More than 90% | 40 | 70 | Mortgage term |
| Greater than $726,200 | Less than or equal to 78% | 15 | 45 | 11 years |
| Greater than $726,200 | Less than 90% but greater than 78% | 40 | 70 | 11 years |
| Greater than $726,200 | Greater than 90% | 65 | 95 | Mortgage term |
How Long Do You Have to Pay MIP on an FHA Loan?
FHA MIP used to work like private mortgage insurance (PMI) on conventional loans. Once you reached 20% equity, MIP would drop. However, post-2013, you can no longer cancel your MIP. There is an exception though, if you made a down payment of 10% or more, your MIP will drop after 11 years.
Can You Get Rid of FHA Mortgage Insurance?
Your origination date will play 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.
June 3, 2013, to present: Your MIP will only be canceled once your mortgage is paid in full unless you made a down payment of at least 10 percent. If so, 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.
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.
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.
