What is FHA mortgage insurance?
FHA mortgage insurance is a fee borrowers must pay on all FHA loans. Unlike private mortgage insurance on conventional loans, FHA mortgage insurance is paid to the Department of Housing and Urban Development (HUD), not the lender.
This is because the Federal Housing Administration (FHA), which operates under HUD, insures FHA loans. By providing this insurance, the FHA reduces the risk for lenders, allowing them to offer loans with lower down payments and more flexible credit requirements.
Because of this protection, lenders are more willing to approve borrowers who might not qualify for conventional financing, such as offering lower credit score requirements and allowing a minimum down payment of 3.5%.
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 equal to 1.75% of the total loan amount. If your home loan amount is $300,000, your upfront MIP would be approximately $5,250.
Though referred to as “upfront,” you can pay this fee at closing or roll it into your total loan cost divided into your monthly mortgage payment.
Annual FHA MIP
FHA loans also have annual fees that vary depending on your down payment size and total loan amount. Annual FHA mortgage insurance lasts for the life of the loan unless you provide a 10% down payment or more at closing. In that case, you can cancel MIP after 11 years.
Keep in mind that the upfront FHA fee is the same for all borrowers, no matter your loan size or the amount you pay at closing.
How much is the annual MIP on FHA loans?
Your annual MIP rate will vary depending on the size of your FHA loan and down payment. However, most borrowers can expect to pay around 0.55% of the total loan amount in annual MIP in 2025.
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 annually in fees, helping make homeownership more affordable.
FHA Annual MIP Chart (For Loan Terms 15 Years or More)
| Loan Amount | Down Payment Percentage | Annual MIP | How Long You’ll Pay |
|---|---|---|---|
| $726,200 or less | 10% or more | 0.50% | 11 years |
| $726,200 or less | 5%–10% | 0.50% | Entire mortgage term |
| $726,200 or less | Less than 5% | 0.55% | Entire mortgage term |
| $726,200 or more | 10% or more | 0.70% | 11 Years |
| $726,200 or more | 5%–10% | 0.70% | Entire mortgage term |
| $726,200 or more | Less than 5% | 0.75% | Entire mortgage term |
FHA Annual MIP Chart (For Loan Terms 15 Years or Less)
| Loan Amount | Down Payment Percentage | Annual MIP | How Long You’ll Pay |
|---|---|---|---|
| $726,200 or less | 10% or more | 0.15% | 11 years |
| $726,200 or less | Less than 10% | 0.40% | Entire mortgage term |
| $726,200 or more | 22% or more | 0.15% | 11 years |
| $726,200 or more | 10%–22% | 0.40% | 11 years |
| $726,200 or more | Less than 10% | 0.65% | Entire mortgage term |
Conventional PMI vs. FHA MIP
While private mortgage insurance (PMI) and mortgage insurance premiums (MIP) protect lenders if a borrower defaults, they function differently depending on the loan type.
Firstly, PMI is paid to private mortgage companies, while FHA MIP is paid to a government agency. PMI is also mandatory on conventional loans when the borrower puts down less than 20% and varies in cost based on factors like credit score and down payment size.
Unlike MIP, PMI can be removed once the borrower reaches 20% equity in their home and drops off automatically at 22% equity.
MIP, on the other hand, is required for FHA loans regardless of the down payment amount and includes both an upfront premium and an annual premium. For most FHA loans, MIP lasts for the life of the loan unless the borrower makes a down payment of at least 10%, in which case they can remove it after 11 years.
Can you remove FHA mortgage insurance?
FHA MIP used to work like PMI on conventional loans—once you reached 22% equity, it would automatically drop.
However, for FHA loans issued after 2013, home equity no longer determines how long you pay MIP. Instead, it depends on your down payment size made at closing:
- Less than 10% down → MIP lasts for the entire loan term
- 10% or more down → MIP is removed after 11 years
Whether or not you can remove your MIP largely depends on when you took out your mortgage:
| When You Got Your FHA Loan | MIP Cancellation Policy |
|---|---|
| July 1991 to December 2000 | FHA mortgage insurance premiums cannot be canceled. |
| January 2001 to June 3, 2013 | MIP will be canceled automatically once your loan-to-value ratio (LTV) is 78% or your home equity is 22%. |
| June 3, 2013 to present | MIP will be canceled after 11 years if you put at least 10% down at closing. Otherwise, FHA mortgage insurance premiums cannot be canceled. |
Even if you’re not eligible for MIP cancellation, you can always refinance to a conventional mortgage to remove it.
At the end of the day, insurance premiums are standard for most home loan options. When determining your homebuying budget, consider MIP on FHA loans. If you're set on using an FHA loan, be sure to factor MIP into your budget. To lower your monthly MIP costs, consider making a larger down payment—10% or more—or plan to refinance when the time is right.
