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What Is FHA Mortgage Insurance Premium (MIP)?

FHA mortgage insurance premium (MIP) is required on all FHA loans. It protects the lender against losses if a borrower defaults on the mortgage. Unlike private mortgage insurance (PMI) on conventional loans, which can be canceled when you reach 20% equity, FHA MIP has different rules regarding duration. MIP is collected by FHA-approved lenders and forwarded to HUD's Mutual Mortgage Insurance Fund, which pays claims to lenders in the event of borrower default.

Upfront Mortgage Insurance Premium (UFMIP)

The upfront MIP is a one-time charge equal to 1.75% of the base loan amount. For example, on a $250,000 loan, the UFMIP would be $4,375. This premium is due at closing, but most borrowers choose to finance it into the loan amount rather than paying it out of pocket. If you refinance into a new FHA loan within three years, you may be eligible for a partial refund of the original UFMIP, as outlined in HUD Mortgagee Letter 2005-03.

Annual MIP Rates

The annual MIP is paid monthly as part of your mortgage payment. Current rates, as established by HUD, are based on the loan term, loan amount, and loan-to-value (LTV) ratio:

For a $250,000 loan with a 30-year term and 3.5% down (LTV of 96.5%), the annual MIP would be approximately $1,375 per year, or about $115 per month added to your payment.

How Long Do You Pay MIP?

The duration of FHA MIP depends on your down payment and loan term:

This is a significant consideration when comparing FHA loans to conventional financing. With a conventional loan and PMI, you can typically request removal of mortgage insurance once you reach 20% equity, and it automatically terminates at 22% equity.

Strategies to Reduce MIP Costs

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