FHA Mortgage Insurance Premium (MIP) is an important part of FHA Insured loan. Mortgage insurance is insurance that protects lenders against any losses that may result from a consumer defaulting on their FHA-insured home loan. FHA home loans require two types of Mortgage Insurance Premiums for all borrowers, regardless of down payment.
The two types of Mortgage Insurance Premiums associated with FHA loans are:
1. Up Front Mortgage Insurance Premium (UFMIP) – can be financed into the total loan amount at the initial time of funding or paid at closing
2. Annual Mortgage Insurance Premium – an annual mortgage insurance premium that is divided into monthly payments made along with your principal, interest, taxes, and Insurance
Conventional loans that have a Loan-to-Value over 80% may also require mortgage insurance premiums but this mortgage insurance is private so therefore called PMI. The mortgage insurance premiums for conventional loans are calculated off the borrower’s loan to value, qualifying FICO score, loan purpose, and occupancy. These premiums can often be much more than the MIP set by FHA depending on the scenario.
Calculating Premiums
Mortgage Insurance is a very important part of every FHA loan since a loan that only requires a 3.5% down payment is generally viewed by lenders as a risky proposition. Without government-backed loans like those provided by the FHA around to ensure the lender against a loss if a default occurs, low down payment home loan options would be limited and many first-time homebuyers wouldn’t be able to achieve the dream of homeownership. Below are the required FHA MIP rates for all FHA loans.
Up Front Mortgage Insurance Premium (UFMIP)
For most FHA loans, the UFMIP is equal to 1.75% of the base FHA loan amount except for a few exceptions like streamline or simple refinances, and a few other niche HUD FHA programs.
For Example:
- If John purchases a home for $100,000 with 3.5% down, his base FHA loan amount would be $96,500
- The UFMIP of 1.75% is multiplied by $96,500, equaling $1,688.75
- This amount is added to the base loan, for a total FHA loan of $98,188.00. The additional $.75 is paid at closing
2021 Annual MIP Rates for FHA Loans Over 15 Years
For any loan greater than 15 years, like the highly sought after 30-year fixed mortgage, your annual mortgage insurance premium will be as follows:
| Base Loan Amount | LTV | Annual MIP |
|---|---|---|
| ≤$625,500 | ≤95% | 80 bps (0.80%) |
| ≤$625,500 | >95% | 85 bps (0.85%) |
| >$625,500 | ≤95% | 100 bps (1.00%) |
| >$625,500 | >95% | 105 bps (1.05%) |
2021 Annual MIP Rates for FHA Loans Up to 15 Years
Homebuyers, and homeowners refinancing their existing loan, that are looking to pay off their home sooner and can afford a shorter term, like a 15-year mortgage, will benefit from reduced mortgage insurance premiums as follows:
| Base Loan Amount | LTV | Annual MIP |
|---|---|---|
| ≤$625,500 | ≤90% | 45 bps (0.45%) |
| ≤$625,500 | >90% | 70 bps (0.70%) |
| >$625,500 | ≤78% | 45 bps (0.45%) |
| >$625,500 | 78.01% to 90% | 70 bps (0.70%) |
| >$625,500 | >90% | 95 bps (0.95%) |
How Long Will You Pay MI Premiums
For all FHA loans with a case number assigned on or after June 3, 2013, FHA requires the annual MIP to be collected for the following terms:
| Term | LTV | Previous | New |
|---|---|---|---|
| ≤15 Years | ≤78% | no annual MIP | 11 Years |
| ≤15 Years | 78.01% to 90% | cancelled at 78% LTV | 11 Years |
| ≤15 Years | >90% | loan term | Loan Term |
| >15 Years | ≤78% | 5 years | 11 Years |
| >15 Years | 78.01% to 90% | cancelled at 78% LTV and 5 years | 11 Years |
| >15 Years | >90% | cancelled at 78% LTV and 5 years | Loan Term |
