What Is an FHA Mortgage Insurance Premium?
FHA loans offer great benefits for buyers with lower credit scores or smaller down payments, but they require mortgage insurance premiums (MIP). Understanding these costs helps you budget accurately.
Two Types of FHA MIP
Upfront MIP (UFMIP): A one-time fee of 1.75% of the loan amount, typically rolled into the loan balance. On a $300,000 loan, that’s $5,250 added to your balance.
Annual MIP: An ongoing monthly charge included in your mortgage payment. For most borrowers, this is 0.55% of the loan balance per year, divided into 12 monthly payments.
How Long Do You Pay MIP?
If your down payment is less than 10%, you pay annual MIP for the life of the loan. If you put 10% or more down, MIP drops off after 11 years. This is different from conventional PMI, which can be removed at 20% equity.
FHA MIP vs. Conventional PMI
Conventional PMI rates vary by credit score and down payment but typically range from 0.3% to 1.5%. Conventional PMI can be removed once you reach 20% equity. FHA MIP rates are the same regardless of credit score, making FHA more affordable for lower-credit borrowers.
Strategies to Manage MIP Costs
Put 10% or more down to get MIP removed after 11 years. Refinance into a conventional loan once you reach 20% equity to eliminate insurance entirely. QuickFund Mortgage can model both scenarios to find your most cost-effective path.