An Inside Look at FHA Loans’ Mortgage Insurance Premiums (MIP)

The Federal Housing Administration insures mortgages made to low- and moderate-income households in the U.S. This guarantee encourages lenders to make loans to borrowers who may not qualify for traditional financing. For the agency to continue backing loans, it imposes MIP on FHA loans.

Short for mortgage insurance premiums, FHA MIP is the equivalent of private mortgage insurance on conventional loans with less than 20% down payment. Learn the basics of this mortgage insurance and find out FHA MIP rates this 2018.

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FHA MIP by the Letter

Per HUD who regulates FHA, the mortgage insurance protects lenders against losses when the borrower defaults on his/her loan. With the MIP in place, lenders bear lower risk when making FHA loans to eligible borrowers.

By its mandate, FHA maintains a mutual mortgage insurance fund that it uses to pay out claims to lenders because of defaulted loans. Collected MIPs from borrowers go to this fund, which supports homebuying dreams of Americans with down payments as low as 3.5%.

Say you plan to use an FHA-backed mortgage to buy a home. How does this FHA mortgage insurance premium work?

    • Mortgage insurance premiums are collected on FHA loans with loan terms of (i) at least or less than and (ii) greater than 15 years.
    • MIP is collected upfront and annually (per month).
    • You pay an upfront MIP or UFMIP everytime you take out an FHA loan. It is collected at closing — there’s no need to pay cash because this upfront premium can be financed into the loan.
    • You pay an annual MIP that is collected every month. This monthly premium depends on your loan-to-value ratio.

2018 FHA MIP Rates

For 2018, all FHA mortgages have an upfront MIP of 1.75% of the base loan amount.

This upfront charge, however, is not applicable to:

  • Streamline and simple refinances used in refinancing mortgages that were endorsed on or before 31 May 2009. These transactions have a 0.01% UFMIP.
  • Section 247 of the Housing Act mortgages on designated Hawaiian Home Lands.
  • Section 248 of the Housing Act mortgages on designated Indian Lands because they don’t have UFMIP fees.

Shop and compare rates here.

Annual mortgage insurance premiums are calculated based on the mortgage term and the base loan amount. They don’t apply, however, to Hawaiian Home Lands mortgages and Streamline and Simple refinances as noted below.

A. Mortgages whose repayment term exceed 15 years

Base loan amount LTV MIP in bps Length of paying MIP
Less than or equal to $625,500 Less than or equal to 90% 80 11 years
(i) Greater than 90% but (ii) less than or equal to 95% 80 Mortgage term
Greater than 95% 85 Mortgage term
Greater than $625,500 Less than or equal to 90% 100 11 years
(i) Greater than 90% but (ii) less than or equal to 95% 100 Mortgage term
Greater than 95% 105 Mortgage term

B. Mortgages with term less than or equal to 15 years

Base loan amount LTV MIP in bps Length of paying MIP
Less than or equal to $625,500 Less than or equal to 90% 45 11 years
Greater than 90% 70 Mortgage term
Greater than $625,500 Less than or equal to 78% 45 11 years
(i) Greater than 78% but (ii) less than or equal to 90% 70 11 years
Greater than 90% 95 Mortgage term

C. Streamline and Simple Refinances regardless of mortgage term

Base loan amount LTV MIP in bps Length of paying MIP
All Less than or equal to 90% 55 11 years
Greater than 90% 55 Mortgage term

A schedule for FHA mortgage insurance premium rates is accessible here.

As can be gathered from the charts, it’s possible to stop paying annual MIPs. There are FHA loans however whose MIPs can only be canceled when the loan is paid off or refinanced into conventional loans, etc.

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