FHA Mortgage Insurance: How MIP Works and When It Ends

Direct answer: Most FHA purchase loans charge a 1.75% upfront mortgage insurance premium plus an annual premium paid monthly. For a common 30-year loan with 5% down or more, annual MIP is 0.50%; with less than 5% down, it is 0.55%. MIP usually lasts 11 years at 90% LTV or less and the loan term above 90%.

Why FHA mortgage insurance exists

FHA does not directly lend money to homebuyers. It insures qualifying mortgages made by approved lenders. Mortgage insurance reduces the lender's loss risk if a borrower defaults, which helps make FHA's low-down-payment and flexible-credit framework possible. The insurance protects the lender, not the borrower, and it increases the borrower's loan cost.

FHA mortgage insurance is commonly abbreviated MIP. It should not be confused with private mortgage insurance, or PMI, on a conventional loan. Both protect the lender, but their pricing and cancellation rules are different. Assuming that FHA MIP automatically disappears at 20% equity is one of the most common payment-planning mistakes.

The two parts of FHA mortgage insurance

HUD's current standard upfront premium for most FHA forward mortgages is 175 basis points, or 1.75%, of the base loan amount. A $300,000 base loan therefore has a $5,250 upfront premium. If financed, the starting total FHA loan would be $305,250 before considering any other permitted financing adjustments. The premium does not reduce the required minimum investment in the home.

How the monthly FHA MIP rate is determined

For the purchase scenario most buyers encounter—a mortgage term longer than 15 years and a base loan amount at or below the applicable national conforming-loan threshold—HUD's annual MIP rate is 0.55% when the original loan-to-value ratio exceeds 95%. The rate is 0.50% when the original LTV is 95% or less.

That means the difference between 3.5% down and 5% down can affect more than the base loan amount: it may also reduce the applicable annual MIP rate by five basis points. Whether contributing more cash is the best choice depends on the payment change, available reserves, other debts, seller credits, assistance rules, and the buyer's broader plan.

Loans above the applicable conforming threshold and mortgages with terms of 15 years or less use different premium tables. Certain specialized FHA programs also have exceptions. The Loan Estimate, lender calculation, and current HUD table should control the actual transaction rather than a generic online estimate.

A worked FHA MIP example

Assume a $400,000 purchase with the minimum 3.5% down payment. The base loan would be $386,000. At 1.75%, the upfront MIP would be $6,755. If that premium is financed, the starting total loan amount would be $392,755.

Because the original LTV exceeds 95%, the common annual MIP rate would be 0.55% under HUD's current table. Multiplying the $386,000 base amount by 0.55% produces $2,123 per year, or about $176.92 per month, as a simple first-year planning estimate. HUD's actual periodic-premium calculation uses the scheduled average outstanding balance and required rounding, so the lender's disclosed amount may differ slightly.

This example addresses only mortgage insurance. A complete payment also includes principal, interest, property taxes, homeowners insurance, and any flood insurance or association charges. Cash to close may include closing costs and prepaid expenses in addition to the down payment.

When does annual FHA MIP end?

For FHA case numbers assigned on or after June 3, 2013, the key dividing line is the original LTV:

• Original LTV of 90% or less: annual MIP is generally collected for 11 years.
• Original LTV above 90%: annual MIP is generally collected for the mortgage term.

The rule uses the LTV established at origination. Paying the principal balance down to 80%, receiving a higher appraisal later, or believing the home has appreciated does not by itself cancel annual MIP on a current FHA loan. Older FHA loans can follow different rules based on their case-assignment date, so homeowners should check the loan's specific history rather than apply today's table retroactively.

Can refinancing remove FHA mortgage insurance?

A homeowner with sufficient equity and qualification may consider refinancing from FHA into a conventional mortgage without PMI. But removing MIP is not automatically a financial win. A refinance replaces the existing mortgage, so the new interest rate, term, payment, loan amount, appraisal, closing costs, break-even period, and time expected in the home all matter.

For example, saving $150 per month in mortgage insurance may not justify thousands of dollars in costs or a meaningfully higher interest rate. Conversely, a well-timed refinance may improve the full payment and long-term cost. The analysis should compare staying with the current FHA loan against the proposed new loan over realistic time horizons, not just compare one line item.

FHA MIP versus conventional PMI

FHA annual MIP is set through HUD's program table and is not directly priced from an individual borrower's credit score. Conventional PMI pricing can vary with credit score, LTV, occupancy, loan purpose, property type, and other risk factors. A borrower with a higher credit score may find conventional PMI less expensive, while another borrower may find FHA offers the more workable overall qualification or payment structure.

Conventional PMI may be cancellable under federal law and loan-specific rules after required equity and payment-history conditions are met. FHA MIP follows FHA's duration table. That distinction makes it important to compare the estimated payment today, cash required, qualification standards, and the likely cost over the expected holding period.

Questions to ask before choosing FHA

1. What are the base loan amount, financed upfront MIP, and total loan amount?
2. Which annual MIP rate and duration apply to this exact loan?
3. How would 5% or 10% down change the payment and reserves?
4. What would a comparable conventional loan cost today?
5. Does assistance or a seller credit change the best cash-to-close strategy?
6. How long do I realistically expect to own this home and keep this mortgage?
7. What assumptions appear in the Loan Estimate's projected payment?

For related planning, review Dan's FHA loan guide, cash-to-close guide, seller-credit guide, and Path 2 Buy process.

Primary sources

• HUD: FHA mortgage insurance premium structure for forward mortgages
• HUD: How long annual MIP is collected on current FHA loans
• HUD Mortgagee Letter 2023-05: FHA annual MIP rates
• HUD: Current FHA Single Family Housing Policy Handbook 4000.1
• CFPB: What mortgage insurance is and how it works
• CFPB: Loan Estimate explainer

This article is educational and is not an approval, rate quote, commitment to lend, or individualized legal, tax, credit, or financial advice. FHA, lender, borrower, property, appraisal, mortgage-insurance, and refinance requirements apply and can change. All loans are subject to approval. Equal Housing Lender.