FHA loans exist to make homeownership easier for buyers who may not qualify for a conventional mortgage, like first-time buyers, those with limited savings, or borrowers with lower credit scores. But with this flexibility comes a requirement: FHA home mortgage insurance.

Known as the Mortgage Insurance Premium (MIP), this fee protects lenders if a borrower defaults, making it possible for them to approve applicants who might otherwise be turned away. Importantly, the cost of MIP falls on the borrower, not the lender, and every FHA loan comes with this expense.

It doesn’t matter if it’s your first time using an FHA loan or if you just need a refresher on how they work; our guide helps you conduct due diligence to make the best decision in your homebuying journey.

Who Needs FHA Mortgage Insurance?

Any borrower with an FHA-backed loan must pay MIP, no matter their credit score or down payment size. It’s especially common among:

  • First-time homebuyers.
  • Borrowers with lower or fair credit scores.
  • Buyers who can’t afford a large down payment (FHA requires as little as 3.5%).

How FHA Mortgage Insurance Works

MIP is split into two parts, which will affect your cost, payments, and other details that affect your finances:

1. Upfront Mortgage Insurance Premium (UFMIP)

  • Cost: 1.75% of the total loan amount.
  • Payment: Due at closing, but can often be rolled into your loan.
  • Refunds: Generally non-refundable, except if you refinance into another FHA loan within three years.

2. Annual Mortgage Insurance Premium (MIP)

  • Cost: 0.15%–0.75% of your loan balance, depending on loan amount, loan term, and loan-to-value (LTV) ratio.
  • Payment: Added to your mortgage in 12 monthly installments.
  • Duration:
    • Less than 10% down: Paid for the life of the loan.
    • 10% down or more: Paid for 11 years.

Cost Examples: What MIP Looks Like

States have different FHA home loan limits, meaning where you live can affect your upfront MIP. To make the costs more tangible, here’s what FHA mortgage insurance could look like based on common loan sizes in different states:

  • Colorado ($524,225 – $1,209,750):
    • On a $524,225 loan, the upfront MIP is about $9,173.
    • On a $1,209,750 loan, the upfront MIP jumps to around $21,171.
  • Missouri ($524,225 – $1,008,300):
    • On a $524,225 loan, the upfront MIP is about $9,173.
    • On a $1,008,300 loan, the upfront MIP is roughly $17,646.
  • Tennessee ($524,225 – $989,000):
    • On a $524,225 loan, the upfront MIP is about $9,173.
    • On a $989,000 loan, the upfront MIP is around $17,307.
  • Texas ($524,225 – $571,550):
    • On a $524,225 loan, the upfront MIP is about $9,173.
    • On a $571,550 loan, the upfront MIP comes to about $9,999.

These numbers reflect the upfront MIP (1.75%) only. Remember, borrowers will also owe the annual MIP, which is added to monthly mortgage payments and varies based on loan details.

FHA MIP vs. Private Mortgage Insurance (PMI)

It’s common to mix up FHA’s MIP with conventional loan PMI, but they work differently.

With FHA loans, MIP is required for everyone, regardless of your down payment. On the other hand, PMI only comes into play with conventional loans if you put down less than 20%.

When it comes to canceling, the rules split again. FHA loans with less than 10% down mean MIP lasts for the life of the loan. If you put at least 10% down, MIP sticks around for 11 years.

Conventional PMI is more flexible, as you can drop it once you’ve built 20% equity in your home.

There’s also the upfront cost to consider. FHA loans charge a 1.75% upfront premium called UFMIP, while conventional PMI doesn’t require any upfront payment.

Here’s the takeaway:

  • FHA loans can be a great option if you’re struggling to make a big down payment, but the insurance costs last longer.
  • Conventional loans, with PMI, give you more freedom to cancel once you’ve built equity.

The best choice really comes down to your budget, how much you can put down upfront, and how long you plan to stay in the home.

Your Resource From FHA Home Loan Mortgage Insurance to Home Coverage

FHA mortgage insurance makes lending less risky for banks while opening doors for borrowers who might not qualify otherwise.

If you’re considering an FHA loan, weigh the benefits of easier approval and lower down payments against the long-term expense of MIP.

Refinancing into a conventional loan later is often the best way to eliminate ongoing mortgage insurance costs.

At Free The Insurance, we help people connect with real estate experts, compare home insurance quotes, and overall, save money as homeowners.

Connect with us today and discover how we can help you keep more money in your pockets.

Sources:

HUD. Accessed September 2025.

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