Do FHA loans have PMI?
Learn about mortgage insurance on FHA loans
Many customers ask us if FHA loans have mortgage insurance which they often call "PMI," which stands for private mortgage insurance. You are required to pay mortgage insurance on FHA loans, but the mortgage insurance on these loans is called a mortgage insurance premium (MIP), not PMI. The rules for when you need to pay this type of mortgage insurance are different than PMI and how much you pay can be different than PMI, too. Read on to learn more!
FHA loan mortgage insurance requirements
The first thing to understand is that all FHA loans require mortgage insurance. This is different than the PMI you might need to pay when you get a conventional loan.
When you buy a home with a conventional loan, you need to pay for PMI if you make a down payment of less than 20%. When you refinance with a conventional loan, you need to pay for PMI if your home equity is less than 20%.
FHA loans require you to pay for mortgage insurance when you buy or refinance a home, regardless of the amount of your down payment or home equity. You are also required to pay for two kinds of mortgage insurance. FHA loans have a one-time upfront fee you need to pay at closing (called "UFMIP") as well as monthly insurance payments (called "MIP").
Conventional loans do not have upfront PMI payments. Learn more about the differences between PMI vs MIP.
Reduction for mortgage insurance premiums
On March 20, 2023 the Department of Housing and Urban Development (HUD) reduced FHA annual mortgage insurance premiums (MIP) for new borrowers. They estimate that on average new FHA homeowners will save $800 annually as a result of this reduction. Please note that these savings do not apply to homeowners with existing FHA loans.
How much is mortgage insurance on an FHA loan?
The cost of FHA loan mortgage insurance depends on your loan amount, your loan-to-value ratio ("LTV"), and your mortgage term. This means the cost of mortgage insurance will be different from one FHA homeowner to the next. Let’s look at a sample homeowner to give you a sense of how much UFMIP and MIP might cost.
The upfront mortgage insurance premium is equal to 1.75% of the base loan amount. This means if you borrow $250,000 to finance a home with an FHA loan, your upfront premium would cost $4,375. This is a one-time fee you pay at closing or add to your loan amount.
The annual mortgage insurance premiums are affected by base loan amount, your loan-to-value ratio, and your mortgage term. Pretend again you are borrowing $250,000 to buy a home with an FHA loan. Then say you made a 10% down payment, so that your loan-to-value ratio is 90%. Finally, say you choose a mortgage with a 30-year term.
In this case, your annual FHA loan mortgage insurance would cost you 0.50% of your loan amount, which is $1,250 total in the first year of your mortgage. This is a cost that you will pay in installments each month as part of your monthly mortgage bill. In our example, your payments will be about $104.17 a month.
Your FHA mortgage insurance costs are recalculated each year based on your average outstanding loan balance. This means that as you pay down your mortgage principal, the cost of your monthly mortgage insurance premiums may go down too.
Borrowing a larger amount of money and having a loan-to-value ratio of greater than 90% will increase the amount you pay. Keep in mind that you will pay upfront and annual mortgage insurance costs when refinancing an FHA loan.
Figuring out how much your FHA loan mortgage insurance might cost can be a little complicated. Our experienced Loan Advisors can help you estimate your costs.
How to stop paying FHA loan mortgage insurance
For recent FHA loans, you will need to pay insurance premiums for at least 11 years, and you may need to pay them for the life of the loan. Some FHA homeowners refinance into a conventional loan to stop paying for mortgage insurance. Learn more about how to stop paying for mortgage insurance.
Freedom Mortgage is a top FHA lender in the United States according to Inside Mortgage Finance, Jan.–Sept., 2023.
Last reviewed and updated February 2024 by Freedom Mortgage.