If you use an FHA (Federal Housing Administration) loan to buy your home, you will have to pay mortgage insurance. Mortgage insurance premiums (MIP) exist to protect lenders when FHA borrowers default on a loan.
While home buyers like FHA loans, thanks to their more flexible requirements, the idea of mortgage insurance is an unwelcome extra expense.
What are Mortgage Insurance Premiums in 2023 for FHA Loans?
Homebuyers can qualify for an FHA loan with lower credit scores and a down payment of 3.5%, but this makes them more of a risk to FHA-approved lenders. To counter this risk, mortgage insurance is required.
There are two types of premiums, one is paid upfront, and the other is annual. The upfront mortgage insurance premium (UFMIP) is paid at closing. The annual MIP premium is divided by 12 and added to your monthly loan payments, and this is usually, but not always, paid for as long as you have the mortgage.
Do You Pay Mortgage Insurance on Conventional Loans?
Conventional mortgages have insurance payments when your down payment is under 20%. This is called private mortgage insurance (PMI) and differs from MIP as it’s only required when you have less than 20% equity.
PMI is based on credit score, debt-to-income ratio, down payment, and mortgage size. PMI tends to be higher on larger home loans. Premiums range from 0.58% to 1.86% of the loan, so it’s likely more than you will pay for MIP. However, you will probably be paying PMI for less time.
How Much Does FHA MIP Cost?
The upfront MIP is 1.75% of the loan amount, though this can be rolled into the loan. If, for example, you are borrowing $200,000, the UFMIP will be $3,500.
The cost of annual mortgage insurance premiums was recently reduced. Borrowers with down payments under 5%, and with loans less than $726,200, were paying 0.85%. This has now been reduced to 0.55%, with a cut of 0.3% for all borrowers.
|Upfront Mortgage Insurance Premium (UFMIP)|
|All Mortgages: 175 Basis Points (bps) (1.75%) of the Base Loan Amount.|
|Indian Lands (Section 248) do not require a UFMIP.|
|Annual Mortgage Insurance Premium (MIP)|
|Applies to all Mortgages except:
|Mortgage Term of More Than 15 Years
|Less than or equal to $726,200||≤ 90.00%||50||11 years|
|> 90.00% but ≤ 95.00%||50||Mortgage term|
|> 95.00%||55||Mortgage term|
|Greater than $726,200||≤ 90.00%||70||11 years|
|> 90.00% but ≤ 95.00%||70||Mortgage term|
|> 95.00%||75||Mortgage term|
|Mortgage Term of Less than or Equal to 15 Years|
|Less than or
|≤ 90.00%||15||11 years|
|> 90.00%||40||Mortgage term|
|≤ 78.00%||15||11 years|
|> 78.00% but ≤ 90.00%||40||11 years|
|> 90.00%||65||Mortgage term|
|Streamline Refinance, Simple Refinance|
|For refinance of previous Mortgage endorsed on or before
May 31, 2009
UFMIP: 1 (bps) (.01%) All Mortgages
|All Mortgage Terms
|All||≤ 90.00%||55||11 years|
|> 90.00%||55||Mortgage term|
|For Mortgages where FHA does not require an appraisal, the value from
the previous Mortgage is used to calculate the LTV
On a loan of $200,000, with a 3.5% down payment, you would be paying $1,100 annually. This means almost $92 on top of your monthly loan payments for MIP. Before the recent change, the borrower would have been paying $1,700 or nearly $142 per month, with this recent change creating a saving of $50 each month in this example.
However, if you’ve chosen to roll the upfront insurance premium into your mortgage, you will be paying slightly higher annual premiums as well as more interest overall. On a $200,000 FHA loan, this would be $203,500 x 0.55% = $1,119.25, or $93.27 per month.
How Long Do FHA Mortgage Insurance Premiums Need to be Paid?
The MIP will continue to be charged for the life of your loan unless you have a 10% down payment or more. If your loan-to-value (LTV) ratio is 90% or lower, you will instead continue paying MIP for 11 years.
Is it Possible to Avoid Paying Mortgage Insurance?
There isn’t a way of avoiding MIP when using an FHA loan, and it will either be for the life of the loan or 11 years.
However, there are other options:
- If you have 20% of the purchase price for a down payment, a conventional loan will allow you to avoid MIP and private mortgage insurance (PMI). You do have the option of using an FHA loan to initially buy your home paying MIP, but then refinance it when you have increased your equity to 20%.
- Piggyback loans can be an option if you have a 10% down payment. This option means taking out a second mortgage for 10%, giving you a 20% down payment. This avoids PMI but does mean you have two mortgages to pay.
- There is also lender-paid mortgage insurance (LPMI) loans. These loans can help when you have less than 20 percent for the down payment, and the lender will pay the PMI for you. The downside is the higher interest rate they will charge for this loan.
- If you are eligible for a VA loan, you could buy a home without a down payment or PMI. While they don’t charge PMI, there are other fees.
- Sometimes lenders offer special deals for first-time buyers to help avoid PMI without 20% down. There are also grants available for low-income households that could help you avoid PMI.
How to Remove FHA Mortgage Insurance?
If you buy your home with a 10% down payment, the MIP can be removed after 11 years. With a lower down payment, you could continue paying these premiums until your final mortgage payment.
However, these insurance premiums can be removed by refinancing your mortgage. If you choose a conventional loan and have 20% equity, you won’t have to pay private mortgage insurance. But before you refinance, you might need to work on your credit.
A credit score of at least 620 will be required to refinance. Though if you can improve your FICO score to above 740, you could see a lower interest rate and better terms on the loan.
A good way of improving your credit score is to ensure your payment history doesn’t have problems. Missed payments have a big negative effect on your credit score, and a lender won’t want to see this either when you apply to refinance your home loan.
Paying mortgage insurance when there isn’t a direct benefit to you, won’t sit well with a lot of borrowers. And the fact that it will remain part of your mortgage payment for the lifetime of the loan doesn’t help either.
However, you do have options to avoid paying MIP for as long, like refinancing. And choosing an FHA loan can make buying a house easier for first-time buyers, removing the wait to own their first property.
With the recent reduction in premiums, FHA mortgage insurance isn’t as costly as it used to be either. So if an FHA loan is your best way of buying a home, you shouldn’t let mortgage insurance put you off.
Read the full Mortgagee Letter (pdf)
View our FHA page for detailed FHA mortgage program information.