FHA Mortgage Insurance

FHA mortgage insurance varies from 0.15% to 0.75% of the loan amount. It usually remains for the life of the loan.

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Michelle Blackford spent 30 years working in the mortgage and banking industries, starting her career as a part-time bank teller and working her way up to becoming a mortgage loan processor and underwriter. She has worked with conventional and government-backed mortgages. Michelle currently works in quality assurance for Innovation Refunds, a company that provides tax assistance to small businesses.

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Mortgage insurance protects lenders from losing money if you default on the loan. Most lenders require private mortgage insurance (PMI) for conventional loans when the home buyer makes a down payment of less than 20%. The same goes for refinancers with less than 20% equity.

All FHA loans have mortgage insurance, regardless of down payment amount.

How much does FHA mortgage insurance cost?

A Federal Housing Administration-backed loan requires an upfront premium, or fee, of 1.75% of the loan amount. You can:

Or you can roll it into your loan amount, which increases your monthly payments slightly because you're borrowing more.

In addition to the upfront premium, you’ll pay a monthly mortgage insurance premium, or MIP, that is added to your mortgage payments. Effective for mortgages endorsed for FHA insurance on or after March 20, 2023, the annual premium ranges from 0.15% to 0.75% of the average outstanding loan balance. The fee varies depending on:

Most homebuyers will pay 0.55% for their annual MIP, according to the FHA.

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FHA insurance vs. PMI costs

Which costs less per month, FHA mortgage insurance or private mortgage insurance ? The answer depends on your credit score.

FHA monthly mortgage insurance payments are lower for borrowers with credit scores under 720, according to the Urban Institute. But monthly payments for PMI are slightly less for borrowers with credit scores of 720 to 739, and significantly less for borrowers with credit scores of 740 and higher. You can estimate the cost by using a PMI calculator .

Removing mortgage insurance

The insurance requirement is a key difference between FHA and conventional loans . With a conventional loan, private mortgage insurance may be canceled after you have gained sufficient equity (usually 20%). It’s canceled automatically after your equity reaches 78% of the purchase price.

FHA mortgage insurance can't be canceled if you make a down payment of less than 10%; you get rid of FHA mortgage insurance payments by refinancing the mortgage into a non-FHA loan. When you put 10% or more down on an FHA loan, you pay mortgage insurance premiums for 11 years rather than the life of the loan.

Won’t affect your credit score

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