Is mortgage insurance required on an FHA loan?
Is PMI or up front mortgage insurance required when getting an FHA mortgage loan?
Do I need to get "PMI" mortgage insurance if I get an FHA loan? Yes, and no. PMI is short for "Private Mortgage Insurance" and doesn't apply to FHA loans (PMI only applies to conventional loans). Instead, with an FHA mortgage loan, you will need to get "FHA mortgage insurance." You'll pay an FHA mortgage insurance premium up front at the time of closing. Then, you'll pay a premium each and every year afterwards (FHA insurance ends after 11 years if you put 10% down).
How much is the FHA Up Front Mortgage Insurance Premium?
Your "up front mortgage insurance premium" (UFMIP) is a one-time insurance payment made at the closing of your loan. The amount of this payment is exactly 1.75% of the loan amount. It doesn't matter how much you are borrowing or whether it's a 30 year vs 15 year mortgage, nor does it matter how much of a downpayment you put on the home. The UFMIP, up front mortgage premium, is always 1.75%.UFMIP Example: If you are getting a $300,000 mortgage loan, then you will need to pay an FHA upfront mortgage insurance premium of $5,250 at closing ($300,000 * 1.75% = $5,250). Here are some more examples of up front mortgage insurance premium amount:
| If your loan amount is: | Then your up front FHA mortgage insurance payment of 1.75% is: |
|---|---|
| $200,000 | $3,500 |
| $300,000 | $5,250 |
| $400,000 | $7,000 |
| $500,000 | $8,750 |
| $600,000 | $10,500 |
| $700,000 | $12,250 |
| $800,000 | $14,000 |
If I put 20% down on my FHA loan, do I still have to pay mortgage insurance?
Yes, you do. Most people have heard that you can avoid mortgage insurance by putting 20% down. Well, that is true for conventional loans (non-FHA), but unfortunately it doesn't apply to FHA mortgages. With FHA, you'll still need to pay for mortgage insurance even if you put down 20%. FHA loans are not really intended to be used by people that can afford a large downpayment. So, if you have the funds to make a 20% downpayment, you'll be better off getting a conventional loan.
How much is the FHA Annual Mortgage Insurance Premium?
In addition to the up front insurance payment you make on an FHA loan, you also pay a yearly (annual) mortgage insurance premium. The amount you pay for the yearly premium depends on three (3) things: your loan amount, your loan term (15 years or less versus longer terms), and your LTV (loan to value).
If you are buying a home with an FHA mortgage, then here are some ways you can keep your annual FHA insurance premiums to a minimum:
- Get a 15-year mortgage instead of a 30-year if possible. FHA has lower annual insurance costs for loan terms that are 15 years or less.
- Put at least 10% down on the home. The lowest possible yearly FHA insurance premium can be had with a 10% down payment.
- Don't borrow more than $726,200. FHA rates are higher if you borrow more than this dollar amount.
Example FHA up-front and annual premium for a $500,000 home:
Here is an example of how much annual FHA insurance you would need to pay on a $500,000 home. You'll notice that you can pay less FHA insurance premium if you have a bigger downpayment and if you have a shorter mortgage term of 15 years instead of 30 years. The example below reflects reduced FHA insurance rates that became effective on March 20 2023 because the Biden administration made a decision to lower the annual FHA MIP rates in response to housing and economic conditions. This is good news!
| Home Price | Downpayment | Term | Up-front FHA insurance will cost: | Annual FHA mortgage insurance will cost: |
|---|---|---|---|---|
| $500,000 | $50,000 (10%) | 15 years | $7,875 (one-time payment) |
$675 per year for 11 years (used to be $2,025 before Biden rate reduction) |
| $500,000 | $25,000 (5%) | 15 years | $8,313 (one-time payment) |
$1,900 per year for the life of the loan (used to be $3,325 before Biden rate reduction) |
| $500,000 | $50,000 (10%) | 30 years | $7,875 (one-time payment) |
$2,250 per year for 11 years (used to be $3,600 before Biden rate reduction) |
| $500,000 | $25,000 (5%) | 30 years | $8,313 (one-time payment) |
$2,375 per year for the life of the loan (used to be $3,800 before Biden rate reduction) |
Need a detailed FHA insurance calculator?
If you want to enter different numbers and see how much FHA insurance you need to pay, we recommend a really nice FHA mortgage calculator at usmortgagecalculator.org.
How long do I have to pay FHA annual mortgage insurance? Does it drop off automatically after 11 years?
If you get an FHA loan, then you will need to pay FHA annual insurance for either 11 years or for the life of the loan. It depends on how much money you put down on the home. If you put 10% (ten percent) or more down, then FHA annual mortgage insurance will automatically drop off after 11 years. If you put less than 10% down, then you'll have to pay FHA annual insurance for the entire loan period (e.g., 30 years!).
I can't put 10% down, but I don't want to be stuck paying FHA insurance for 30 years
What a lot of people do in this situation is go into the FHA mortgage with the plan of refinancing their mortgage in the next several years, after they have saved enough cash for a bigger down payment on a new loan. Also, they expect their home to increase in value which means that when they refinance in the future, their LTV (loan to value) will be lower, which will help them avoid mortgage insurance.If you don't plan to live in the house for more than 10 or 11 years, then that might also be a good reason to get an FHA loan even if you don't put 10% down. If you will be selling the home in the near future, then paying life-long FHA insurance would not be a concern, because you'll be paying off the FHA mortgage after selling the house (assuming the value of your house hasn't dropped).