FHA Mortgage Insurance

Highlights

  • FHA Purchase Mortgages include both an upfront and monthly mortgage insurance premium.
  • FHA mortgage Insurance allows lenders to offer higher risk loans.
  • Learn about FHA mortgage insurance rates and cancelation policies.
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/5.0
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The FHA Mortgage Insurance Premium Program at a Glance

Looking to buy a home? The FHA purchase mortgage is a popular alternative, combining low down payment and easier credit score requirements.

One crucial aspect of FHA purchase mortgages is that mortgage insurance is a standard requirement. FHA loans require home buyers to take out mortgage insurance, even if the down payment is over 20%.  However, in practical terms, almost all FHA loans have close to the maximum LTV, with a down payment as low as 3.5%.

When shopping for a mortgage, look at all of your costs, including mortgage rates, lender fees, and third-party fees. When comparing an FHA loan to other mortgages, mortgage insurance is a significant cost. 

Learn more about the FHA mortgage insurance, how much it costs and when you can cancel it. 

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Why is There FHA Mortgage Insurance?

Mortgage Insurance helps you purchase a home even if you don't have a large down payment or a weak credit score. For example, if you do not have much equity, then based on past loan performance, your loan is a higher level of default risk.

The US government guarantees FHA Mortgage loans. To maintain the FHA mortgage program, the government charges both an Upfront Mortgage Insurance Premium (UFMIP) and a Monthly Mortgage Insurance Premium (MIP).

Depending on the status of the fund, mortgage insurance premiums change from time to time. For example, in 2013, facing a potential bailout, the FHA increased mortgage insurance premiums. In 2015, the FHA dropped the premiums. In 2017, the Obama administration planned an additional drop in the premiums. However, the Trump administration canceled this.

FHA Mortgage Insurance Costs

FHA has both an upfront fee and Monthly Insurance premium, based on an annual mortgage premium, rate. The most popular FHA purchase mortgage is a 30-year fixed rate mortgage, under $625,000, and a loan-to-value (LTV) over 95%, The current FHA mortgage rates for that loan are 1.75% upfront fee and 0.85% annual mortgage premium.

Up-Front Fees

Unlike the traditional PMI, the FHA Mortage Insurance includes a 1.75% up-front fee (UFMIP) at the time of closing. The most common way to pay the UFMIP is to add it to the amount of your loan and make monthly payments for the life of the loan.

FHA Monthly Insurance Premium

The FHA Annual Mortgage Insurance Premium (MIP) is calculated using three factors:

  • Term (Length of the Loan): Less than/equal to 15 years or more than 15 years
  • Loan Amount: Less than or equal to $625,000 or Greater than $625,000
  • LTV: Has different ranges depending on the length of the loan.

The following chart shows the FHA MIP rates that are current in 2019:

FHA Mortgage Insurance Premiums

For historical perspective check out changes in 2013 and 2015.

The FHA mortgage insurance premium is an annual premium. The payments are made monthly and adjusted each year based on a formula which takes into consideration the adjusted average balance for the following year.

FHA Mortgage Insurance Cancellation

In 2013, the FHA made the removal of mortgage insurance more difficult. Instead of allowing an automatic cancellation policy, most purchase mortgage loans (30-years) are payable for the entire length of the loan. Loan-to-Value ratios determine when the FHA mortgage insurance is canceled.  Here are the cancellation rules for loans that are $625,000 or less:

    • LTV less than or equal to 90%: 11 years
    • LTV greater than 90%: full term of the loan.

In general, conventional loan private mortgage insurance (PMI), can be removed if the loan balance is below 80% of the current market value. In general,  lenders are required to automatically remove PMI when the loan balance falls to 78% of the original loan amount.

FHA Mortgage Insurance For Buying a Home - An Example

Here is an example of FHA mortgage insurance costs for a high LTV loan. If you purchase a home for $268,000 and put down 3.5% ($9,380) and take out a $258,620, 30-year Fixed Rate Mortgage (FRM), then your fees would be:

  • Upfront MIP: 1.75% * $258,620 = $4525.85 . The UFMIP can be added to the loan and paid off each month. Your monthly payment for this fee would be about $23 (depending on your interest rate).
    Monthly MIP: The FHA annual premium is 0.85% multiplied by the loan amount. Your first-year payments would be approximately $183.19.
    Your monthly payment would vary depending on your initial interest rate. See the chart below for different monthly payment scenarios, depending on mortgage rates. 

FHA Mortgage Insurance - Is it Worthwhile?

Shopping for a mortgage is not simple. While FHA loans have advantages due to looser credit requirements, they are not always the cheapest loan or the best choice. There are other low down payment mortgage alternatives. 

Mortgage rates constantly change. In general, FHA loans have lower rates. However, when shopping take into account all of the costs, including the upfront costs, monthly mortgage premiums and all other lender and third-party fees.

Here is an example of today's mortgage rates:

Lower FHA MIP rates make for more attractive FHA loans, especially for those who are at the bottom tier of the credit score for a conventional loan (620-680). However, both Fannie Mae and Freddie Mac offer high LTV, low down payment purchase mortgages for lower to middle-income households with discounted Mortgage Insurance rates.

Shop Around for a FHA Purchase Mortgage

If you are looking to buy a home, then get a mortgage quote now. Compare offers, including mortgage rates, fees, and mortgage insurance.

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45 Comments

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  • JM
    Feb, 2013
    Jeff
    Fallbrook, CA
    I purchased a home for $562,000 in 2010 with a FHA loan. I refinaced in 2012 with FHA streamline 30 years fixed at 3.75%. The MIP is $464/month. I owe $505,000. Will it be benefical for me to pay down the loan to get rid of the MIP? Can I get rid of the MIP? Is the MIP mandatory for 5 years? Will I have to pay MIP for the life of the loan? Does the loan balance have to be 78% or 80% of the original sale price or of the original or current appraised value?
    0 Votes

    • BA
      Feb, 2013
      Bill
      Based on current FHA rules a 30-year loan has mandatory MIP payments for 5 years. It can be cancelled when it reaches the 78% level, based on the appraised value of the property at the time of the streamline refinance. If you can bring the LTV down to 80%, based on today's market, you can refinance into a conventional loan without mortgage insurance.
      0 Votes

  • JF
    Feb, 2013
    John
    Fresno, CA
    I heard that FHA mortgage rates are increasing and are going to remain in place for the life of the loan. Does this apply to the FHA loan I took out late last year?
    0 Votes

    • BA
      Feb, 2013
      Bill
      Three-part answer to your question:
      1. Do you have an adjustable-rate mortgage? If yes, your rates will change in the future, and almost certainly upwards. Any rate change will be due to market changes that impact the index your loan follows.
      2. Do you have a fixed-rate mortgage? If yes, then the interest rate on your loan will not change unless you and the investor agree to a change voluntarily.
      3. Do you have MIP? The MIP rate (fee) may change for new loans, but not for existing loans. Also, the FHA told Congress it will require MIP for the life of loans funded at some point in 2013.

      The change to lifetime MIP for new FHA-backed loans will not be retroactive, based on what little the FHA has stated about this change.

      0 Votes

  • BS
    Mar, 2012
    Bret
    Forest Hill, MD
    Actually, the Editor is incorrect in his explanation of Obama's new rule. The scenario he described in only for current FHA mortgage holders who wish to streamline their loan into a lower rate. On top of that, it is only for loans that were originated before May of 2009. Any new FHA loan, or any FHA loan orginated after that date, is subject to a new, higher premium. The new Upfront Mortgage Insurance is increasing from 1% to 1.75%, and the new monthly MI is going from 1.15% to 1.25%. So, more smoke and mirrors from the President and his crew, wanting us to believe that something is being accomplished, when in fact, he just made it worse.
    4 Votes

    • BA
      Mar, 2012
      Bill
      Thank you for your comment. We need to make it clearer the lower fees are for FHA refinances. The higher fees you mentioned were imposed by Congress to offset a payroll tax cut.
      0 Votes

    • JS
      Apr, 2012
      Josh
      Lancaster, PA
      Bret S. The President does not run the FHA. FHA having such low rates deserves to make people pay up by hiking the rates .10% monthly and .50% up front. If people do not like paying MIP or PMI maybe, just maybe they shouldn't be buying a house.
      1 Votes

    • KE
      Jun, 2012
      Kris
      Morgan Hill, CA
      Brilliant, what we really need is fewer home buyers and more houses to stay on the market right now. This is one potential buyer having a hard time justifying significantly extra monthly costs. Just 0.1% increase represents $300/month for a low cost home in California. There is a time for raising and a time for cutting taxes, and both should be done at the right times, just not sure now is the time to discourage spending etc. What good are the low mortgage rates, if we supplement them with other fees and taxes?
      3 Votes

  • SH
    Feb, 2012
    Suzanne
    Lakewood, OH
    Hello, I was advised by a HUD housing counselor that because my loan was behind and considered in default I could file a partial claim against my PMI/MPI insurance to help me catch up and reinstate the loan. I have been told by my lender that is not a true statement. That the insurance is there to protect them in case I totally default and they have to liquidate the property. Who is right? Just as an aside question, if the lender is correct, what incentive do they have to work with homeowners who have had an issue but are trying hard to get it worked out and get caught up?
    0 Votes

    • BA
      Feb, 2012
      Bill
      The lender is correct that Mortgage Insurance is designed to help the borrower receive a loan, generally with a high LTV, and also protect the lender in case the borrower defaults on the loan. Perhaps the HUD adviser thought that you had a different type of insurance. You can speak with another HUD housing counselor and see if they have a different suggestion. Lender's are interested in seeing that a loan is paid on time. They also do not want to see a loan go into default. Therefore speak with your lender about loan modification programs. For more information read the Bills.com article about government programs.
      0 Votes

    • DB
      Mar, 2012
      Daniel
      Des Moines, IA
      PMI/MIP insurance doesn't insure the borrower; it insures the lender. A borrower cannot make a claim against PMI/MIP insurance to get money to catch up on delinquent payments. I'd advise you to try to work out an arrangement with your current lender, to see if you can get back on track with your payments.
      1 Votes

    • PI
      Mar, 2012
      Private
      Boulder, CO
      FHA partial claim is possible. HUD counselor is correct. It is part of the HUD-FHA handbooks Loss Mitigation requirements.It is clearly outlined on the HUD website in the "Mortgage Letters". In fact, depending on your situation a partial claim can be combined with a modification. The partial claim would bring your loan current and a modification would bring it to 31% of your gross income. It is not straight forward, in fact, after nearly 2 years and HAVING TO GET AN ATTORNEY involved, the final FHA Loan Modification paperwork (Subordinate Note for the Partial Claim and a modification to principal balance and interest rate) are being finalized for signature. Patience, lawyer and knowing what is said in the HUD "Mortgagee Letters" is important!
      1 Votes

    • DB
      Mar, 2012
      Daniel
      Des Moines, IA
      Private I replied here 3/12/12, and has a good point (see his/her post). Although the MIP on a FHA loan insures the lender, as opposed to the borrower, the lender can sometimes utilize the "partial claim" to assist the borrower in getting back on track. The "partial claim" moves the liability for the delinquent payments to the "backside" of the loan, thereby delaying the timing of when those payments are due from NOW until AFTER the regular future payments are paid off.
      2 Votes

  • TT
    Feb, 2012
    Tom
    I am in the process of getting an FHA loan and my lender is telling me that there is a new law that has just passed stating that pmi on FHA loans are now going to stay on the loan for the life of the loan.. Is it true?
    0 Votes

    • BA
      Feb, 2012
      Bill
      To my knowledge there is no new law that requires mortgage insurance for the life of an FHA loan.
      0 Votes

    • DB
      Feb, 2012
      Daniel
      Des Moines, IA
      As a loan originator, I haven't heard anything about MIP being a lifelong obligation. It seems very contrary to their purpose, so I think you got some incorrect information from your lender. MIP's purpose is to protect the lender against your not paying off the loan, when the value of the property could be less than what you paid for it. When your equity exceeds 22% there is a lesser chance that you will fail to keep up the payments.
      3 Votes

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