FHA mortgage insurance (MIP) comes in two parts. You pay a one-time upfront premium of 1.75% of your base loan amount at closing, which most borrowers finance into the loan.
You also pay an annual premium, most commonly 0.55% of the loan balance, split into 12 monthly payments. Your total cost depends on loan amount, down payment, and loan term.
TL;DR
Every FHA loan carries mortgage insurance that protects the lender, not you. It has an upfront piece (1.75% of the loan) and an annual piece (often 0.55%, paid monthly).
On a $300,000 loan that is roughly $5,250 upfront and about $137.50 a month in year one.
How long you pay depends on your down payment, and the usual exit is refinancing into a conventional loan once you have enough equity.
This guide breaks down each cost so you can budget accurately.
What is FHA mortgage insurance (MIP), and why do you pay it?
FHA mortgage insurance is a fee that protects the lender if you default; it is what makes the FHA program’s low down payment possible.
Because the Federal Housing Administration insures the loan, lenders can approve borrowers with smaller down payments and lower credit scores than a conventional loan typically allows.
In exchange, every FHA borrower pays a mortgage insurance premium (MIP), which is the FHA’s version of mortgage insurance.
Two things trip up first-time buyers. First, MIP protects the lender, not you, even though you pay for it. Second, MIP is not optional and is not credit-score-based the way some fees are; if you take an FHA loan, you pay it.
MIP is charged in two separate pieces, and it helps to think of them differently: one is a one-time cost at closing, and the other is an ongoing monthly cost. The rest of this guide walks through each.
What is the upfront FHA mortgage insurance premium (UFMIP)?
The upfront FHA mortgage insurance premium (UFMIP) is a one-time charge equal to 1.75% of your base loan amount, paid at closing.
This rate is the same for every borrower regardless of credit score, down payment, or loan term, and it has held at 1.75% for 2026.
Most borrowers do not pay UFMIP out of pocket. Instead, it is financed into the loan balance, so you pay it off gradually over the life of the mortgage along with interest.
Here is what that looks like on a sample loan:
- On a $300,000 base loan, UFMIP is $5,250 (1.75% of $300,000).
- Financed into the loan, that raises the balance to $305,250.
- Paid at closing instead, it would be a $5,250 cash cost on top of your down payment and other closing costs.
One detail worth knowing: if you later refinance one FHA loan into another FHA loan within three years, you may receive a partial UFMIP refund credit applied to the new loan’s upfront premium.
“The upfront premium surprises people because it is a real 1.75 percent, but almost nobody writes a check for it. We roll it into the loan so it does not stand between a first-time buyer and their closing.”
— Charlie Cooper, President, Austin Capital Mortgage
How much is the annual FHA MIP, and how is it paid?
The annual FHA MIP is most commonly 0.55% of your loan balance for a standard 30-year FHA loan with the minimum 3.5% down, and it is paid monthly as part of your mortgage payment.
Despite the name “annual,” you never pay it in a single lump sum; the yearly figure is divided into 12 and added to each monthly payment.
The 0.55% figure reflects a reduction HUD made in early 2023, when it cut annual MIP by 30 basis points for most borrowers under Mortgagee Letter 2023-05.
Those rates carried into 2026 unchanged. Here is the annual MIP on a sample loan:
- On a $300,000 loan at 0.55%, annual MIP is about $1,650 per year.
- Split across 12 months, that is roughly $137.50 per month in the first year.
- The premium is recalculated each year on your declining balance, so the monthly amount drifts down slightly over time.
Not every borrower pays 0.55%. Borrowers who put more money down, choose a shorter term, or borrow above the FHA’s higher-balance threshold pay a different rate.
What determines how much FHA mortgage insurance costs?
Three factors set your annual FHA MIP rate: your loan term, your loan-to-value (LTV), and your base loan amount. Loan-to-value is simply your loan balance divided by the home’s value; a smaller down payment means a higher LTV.
Upfront MIP does not change with these factors and stays at 1.75% for everyone.
For a loan term greater than 15 years, which covers the standard 30-year FHA loan, the annual MIP breaks down like this:
| Base loan amount | Loan-to-value (LTV) | Annual MIP rate |
|---|---|---|
| $726,200 or less | 95% or less (5%+ down) | 0.50% |
| $726,200 or less | Greater than 95% (3.5% down) | 0.55% |
| Above $726,200 | 95% or less | 0.70% |
| Above $726,200 | Greater than 95% | 0.75% |
A few takeaways for a first-time buyer:
- Most first-time FHA buyers put down the minimum 3.5%, which puts LTV above 95% and lands them at the 0.55% rate.
- Putting down 5% or more drops the annual rate to 0.50% and, as the next sections show, can also change how long you pay.
- Loans above the higher-balance threshold (roughly $726,200, which HUD can adjust) carry meaningfully higher MIP rates.
Because the base loan amount threshold and the rate chart are set by HUD and can change, confirm your exact rate with a loan officer before you budget.
How does FHA MIP compare to conventional PMI?
FHA MIP and conventional PMI both protect the lender, but they work differently in three ways that matter to your wallet: whether there is an upfront fee, how the rate is set, and whether the insurance can be canceled.
Private mortgage insurance (PMI) is the conventional-loan equivalent of MIP, and it is generally required on conventional loans with less than 20% down.
The core difference is cancellation. Conventional PMI can be removed once you reach about 20% equity; FHA MIP, for most loans taken with less than 10% down, stays for the life of the loan unless you refinance out. Here is a side-by-side view:
| Feature | FHA MIP | Conventional PMI |
|---|---|---|
| Upfront premium | Yes, 1.75% of loan amount | No upfront premium |
| Annual/monthly premium | Commonly 0.55% (varies by term, LTV, loan size) | Varies mainly by credit score and LTV |
| Priced on credit score | No | Yes; stronger credit means lower PMI |
| Cancellation | Life of loan if under 10% down; 11 years if 10%+ down | Cancelable at roughly 20% equity |
| Best fit | Lower credit or minimal down payment | Stronger credit, moving toward 20% equity |
The practical read: FHA often wins for buyers with lower credit scores or minimal savings, while conventional can be cheaper over time for buyers with stronger credit who will build equity.
Many borrowers start with FHA and refinance into a conventional loan later to shed MIP.
“The question is not whether MIP or PMI is cheaper on day one. It is which loan costs you less over the years you actually keep it. For a lot of first-time buyers, FHA gets them in the door, and conventional is the refinance target once their credit and equity catch up.”
— Charlie Cooper, President, Austin Capital Mortgage
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How long do you pay FHA MIP, and how do you remove it?
How long you pay FHA MIP depends almost entirely on your down payment. For FHA loans with case numbers assigned after June 3, 2013, the rules are:
- Less than 10% down (LTV above 90%): you pay MIP for the life of the loan.
- 10% or more down (LTV 90% or less): MIP drops off automatically after 11 years.
This is the single biggest surprise for first-time buyers: unlike conventional PMI, FHA MIP on a minimum-down-payment loan does not fall off when you reach 20% equity.
You could have significant equity and still owe MIP every month.
Because most first-time buyers use the 3.5% down option, the main way to remove FHA MIP is to refinance into a conventional loan once you have enough equity, typically around 20%, and a credit profile that qualifies.
At that point the conventional loan may have no monthly mortgage insurance at all. To weigh timing, these are the common paths:
- Refinance FHA to conventional after building roughly 20% equity to eliminate mortgage insurance entirely.
- If you put 10% or more down, simply wait for the 11-year automatic drop-off.
- Older FHA loans (case numbers from January 2001 to June 3, 2013) may follow different, more borrower-friendly cancellation rules; check your specific loan documents.
Refinancing involves new closing costs and a new rate, so it only makes sense when the monthly MIP savings and the new rate justify it. A loan officer can run the numbers both ways.
What This Looks Like in Practice
CASE STUDY
Consider a first-time buyer purchasing a $310,000 home with the minimum 3.5% down, leaving a base loan around $300,000 on a 30-year term.
Her upfront MIP is $5,250 (1.75%), which she finances into the loan rather than paying at closing. Her annual MIP at 0.55% adds roughly $137.50 to her monthly payment in the first year.
She assumed, like many buyers, that the insurance would cancel at 20% equity. Because she put down less than 10%, it will not; her MIP is set for the life of the loan.
Her plan, mapped out with her loan officer, is to revisit a conventional refinance once her home value and paydown push her past 20% equity and her credit supports a competitive conventional rate. The takeaway: budget for MIP as a long-term cost on a low-down-payment FHA loan, and treat a future conventional refinance as the exit, not an automatic cancellation.
Illustrative scenario for education only; figures are examples, not an offer, quote, or approval.
— Charlie Cooper, President, Austin Capital Mortgage
YOUR NEXT STEPS
- Confirm your base loan amount and down payment so you can estimate both the 1.75% upfront MIP and your annual MIP rate.
- Decide whether you can reach 10% down, which shortens MIP to 11 years, or 5% down, which lowers the annual rate.
- Ask a loan officer to show your FHA payment with MIP included, not just principal and interest.
- Compare that FHA payment against a conventional loan with PMI to see which costs less over the years you plan to stay.
- If you already have an FHA loan, check your equity and credit to see whether a conventional refinance could remove MIP.
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