FHA's annual MIP is calculated as a percentage of the outstanding loan balance. For example, an outstanding loan balance of $200,000 with a 0.55% annual MIP (the standard pricing for most FHA-insured mortgages), would yield an annual MIP amount of $1,100.
Monthly MIP: The Mortgage Insurance Premium (MIP) is the FHA's version of PMI, a monthly payment that protects lenders in case of loan default. This ranges from 0.40% to 0.75% depending on your down payment, home price and loan term.
FHA mortgage rates are often lower than rates for conventional mortgages. However, a lower interest rate does not always equate to a lower monthly payment. FHA mortgage insurance will increase your payments and the overall cost of the loan, even if the base rate is lower than for other loan types.
Typically, you'll pay about 0.5% – 1% of your loan amount per year for PMI. This translates to $1,000 – $2,000 per year in mortgage insurance for the average U.S. homeowner who is required to carry coverage, or about $83 – $166 per month.
If you meet the eligibility requirements to remove MIP from an FHA loan, your mortgage servicer should automatically cancel the premiums once you meet the criteria (a 78 percent LTV ratio or 11 years, depending on the loan). That's assuming you're in good standing with a record of on-time mortgage payments.
Your mortgage lender will determine the PMI rate and multiply the percentage by the loan balance. For example, if the PMI rate is 0.5% and your loan amount is $300,000, your PMI will cost $1,500 annually or $125 monthly.
FHA Loan: Cons
Here are some FHA home loan disadvantages: An extra cost – an upfront mortgage insurance premium (MIP) of 2.25% of the loan's value. The MIP must either be paid in cash when you get the loan or rolled into the life of the loan. Home price qualifying maximums are set by FHA.
The upfront fee is currently 1.75% of the initial loan amount and is rolled into the amount financed. The annual mortgage insurance premium can vary based on the loan amount and down payment. Please find the calculation examples on the FHA Details page here.
Conventional loans require monthly private mortgage insurance (PMI) when borrowers put down less than 20%. By refinancing to a conventional loan once you have 20% equity, you can eliminate FHA MIP and you won't be subject to PMI. Or, you could refinance into a conventional loan with PMI now.
An FHA loan may be a better option if you have a lower credit score, a higher DTI ratio, or less money saved for a down payment. On the other hand, a conventional loan may work better if your finances are sound and you can qualify for favorable loan terms.
You may be denied for an FHA loan if you have declared bankruptcy but you have not had the bankruptcy discharged. You may be denied if you are delinquent on federal taxes or otherwise owe money to the federal government but without an approved payment plan.
The average premium for single coverage in 2024 is $8,951 per year. The average premium for family coverage is $25,572 per year [Figure 1.1]. The average annual premiums for single coverage are similar for covered workers at small firms ($9,131) and at large firms ($8,884) [Figure 1.3].
FHA loans work like most other mortgages, with either a fixed or adjustable interest rate and a loan term for a set number of years. There are two term options: 15 years or 30. You'll also pay closing costs for an FHA loan, such as appraisal and origination fees.
The closing costs in your FHA loan will be similar to those of a conventional mortgage loan. These costs typically will be around 2% to 6% of the cost of your property. Your costs will be tied to things like your loan amount state the property is located in and lender fees.
Can you put 20% down on an FHA loan? The FHA only requires a minimum down payment of 3.5% (or 10%, for lower credit borrowers). However, you can put down as much as you want above and beyond the down payment minimum, and doing so may get you a lower mortgage rate and lower monthly payments.
Some reasons a seller might refuse an FHA loan include misconceptions about longer closing times, stricter property requirements, or the belief that FHA borrowers are riskier.
Is it hard to get an FHA loan? Getting any type of home loan requires effort and resources, but generally, it's easier to qualify for an FHA loan than for a conventional mortgage. With the pandemic and recession, however, many lenders' FHA loan and refinance requirements have become more restrictive.
As a general rule, you can get PMI removed once you have 20% equity in your home.
Single-premium PMI
Depending on the terms of the loan, you can either pay this in full at closing or roll the amount into the loan for a higher balance. If you pay it upfront, you'll get the benefit of lower monthly mortgage payments.