How Much Is PMI on FHA Loans?

FHA loans don’t technically use private mortgage insurance (PMI), but they do have mortgage insurance premiums (MIP). Although many people use the terms interchangeably, there are some key differences between how PMI works on a conventional loan versus how MIP works on an FHA loan.

With an FHA loan, you’ll pay mortgage insurance in two parts: an upfront premium at closing and annual premiums. Here’s how much you can expect to pay for each.

Upfront MIP on FHA loans

The upfront MIP on FHA loans is a one-time fee equal to 1.75% of your loan amount. For example, if you borrow an FHA loan of $350,000, you’ll owe an upfront MIP of $6,125 at closing. The amount is due when you close on your FHA loan. Alternatively, you can roll this amount into the loan balance if you want to conserve cash at closing.

Annual MIP on FHA loans

The annual MIP, on the other hand, varies based on your loan amount, loan-to-value (LTV) ratio, and loan term. The annual MIP rate depends on your loan amount relative to $726,200, your LTV ratio, and your loan term.

Is paying MIP on an FHA loan worth it?

Paying MIP on an FHA loan is worth it if you:

• Need to buy now but lack 20% down payment
• Have credit issues that make conventional loans expensive or unavailable
• Plan to refinance within 5-7 years once your financial position improves

Paying MIP on an FHA loan isn't worth it if you:

• Can comfortably afford 20% down on a conventional loan
• Have excellent credit (740+) and can qualify for low-cost conventional loans
• Plan to stay in the home for more than 10 years without refinancing
• Want to avoid permanent insurance costs

MIP rates on FHA loans

FHA loans with terms longer than 15 years

How FHA mortgage insurance affects your total loan cost

Example 1: Minimum Down Payment (3.5%)

• Home price: $300,000
• Down payment: $10,500 (3.5%)
• Loan amount: $289,500
• Interest rate: 6.5%
• Term: 30 years

MIP costs:

• Upfront: $5,066 (rolled into loan = $294,566 financed)
• Monthly: $132.79
• Total MIP over 30 years: $47,804

Total interest + MIP: $389,443

Example 2: 10% Down Payment

• Home price: $300,000
• Down payment: $30,000 (10%)
• Loan amount: $270,000
• Interest rate: 6.5%
• Term: 30 years

MIP costs:

• Upfront: $4,725 (rolled into loan = $274,725 financed)
• Monthly: $112.50
• Total MIP over 11 years: $14,850 (MIP ends after 11 years)

You’ll save over $32,000 in MIP payments plus reduced interest on a smaller loan when you put down at least 10% instead of 3.5%.

How to get rid of PMI on FHA loans

If you want to get rid of mortgage insurance on an FHA loan, you can save for a bigger down payment, refinance into a different type of mortgage, or avoid FHA loans entirely by qualifying for a different type of mortgage.

• Save for a bigger down payment: Saving a larger down payment won’t eliminate MIP on an FHA loan, but it can shorten how long you have to pay it. If you put down at least 10%, your MIP automatically ends after 11 years. If you put down less than 10%, you pay MIP for the life of the loan.
• Get another type of mortgage: If you qualify for a VA loan or USDA loan, you will avoid mortgage insurance and down payment entirely. Or if you qualify for a conventional loan and can put at least 20% down, you can avoid PMI completely by going that route as well.
• Refinance: You can refinance an FHA loan into a conventional loan later to avoid paying MIP for the life of your FHA loan. And as long as you’re refinancing with at least 20% equity, you won’t have to pay PMI on your new conventional loan either.

Pros and cons of paying MIP on FHA loans 

Pros

While MIP adds cost, FHA loans still offer major benefits that can offset the downside of paying MIP:

• Low barrier to entry: FHA loans have more flexible debt-to-income ratios and lower interest rates compared to conventional loans. Plus, you only need to put down 3.5%. This can make home ownership more accessible for some people, which makes paying MIP worth it in the long run.
• Less stringent credit requirements: Since the FHA guarantees this type of mortgage, lenders typically accept credit scores as low as 580 and others 500.

Cons

In some cases, MIP on FHA loans may not be worth the financial cost. Here’s when that may be the case:

• Permanent MIP with 3.5% down: If you put down the normal 3.5% for FHA loans, you’ll pay mortgage insurance over the life of the loan. That can really add up over 15 or 30 years. If you don’t plan on refinancing, you might be better off paying PMI on a conventional loan because that at least will drop off once you hit 20% equity.
• Upfront premium increases your loan balance: If you don’t pay the upfront premium in full at closing, it means you have to roll it into your loan balance. This means you’ll also pay interest on that insurance, increasing your overall total cost.
• 11-year minimum even with 10% down: Even if your home value rises quickly and you reach 22% equity, you still can’t remove MIP early. With 10%+ down, it stays for a minimum of 11 years.

Is paying MIP worth owning a home?

Mortgage insurance is one of the biggest costs associated with FHA loans. But FHA loans are also one of the mortgages that make homebuying possible for millions of people who don’t meet conventional loan requirements. You’ll have to take a close look at your finance, home values in your area, your long-term goals and discuss them with your lender and financial advisor to decide whether or not paying MIP is worth it if it helps achieve your homeownership goals.

FAQ about PMI on FHA loans