Finance Calc Kit

Understanding FHA loan payments and mortgage insurance

An FHA loan is a mortgage insured by the Federal Housing Administration (FHA), a branch of the U.S. Department of Housing and Urban Development (HUD). Designed to expand homeownership opportunities, FHA loans allow eligible home buyers to purchase a home with as little as 3.5% down payment and credit scores as low as 580.

Because FHA mortgages carry lenient qualification criteria, borrowers are required to pay two forms of mortgage insurance: an Upfront Mortgage Insurance Premium (UFMIP) paid at closing or rolled into the loan balance, and an ongoing annual Mortgage Insurance Premium (MIP) divided into monthly installments. To evaluate how your down payment affects borrowing costs, our down payment calculator compares 3.5% FHA thresholds against conventional 5% or 20% down payments. Before submitting an application, lenders also examine debt ratios, which you can verify with our debt-to-income calculator. If you are still searching for homes within your budget, the buying power calculator helps evaluate maximum affordable purchase prices. Eligible veterans can compare zero-down VA options with the VA loan calculator.

How FHA mortgage insurance premiums work

FHA mortgage insurance protects lenders against loss if a borrower defaults on their loan. Under current HUD regulations, the insurance consists of two separate components:

Upfront MIP (UFMIP): A mandatory fee equal to 1.75% of the base loan amount. Most home buyers choose to finance this fee directly into their mortgage principal, while some elect to pay it in cash at closing.
Annual MIP: An ongoing premium paid monthly. Effective March 20, 2023, HUD Mortgagee Letter 2023-05 lowered the annual MIP by 30 basis points (0.30%) across most standard forward mortgages. For 30-year mortgages with a 3.5% down payment on base loan amounts up to $726,200, the annual rate is 0.55% (55 bps).

\mathrm{Base\ Loan} = \mathrm{Home\ Price} - \mathrm{Down\ Payment}

\mathrm{UFMIP} = \mathrm{Base\ Loan} \times 1.75\%

\mathrm{Monthly\ MIP} = \frac{\mathrm{Total\ Financed\ Loan} \times \mathrm{Annual\ MIP\ Rate}}{12}

HUD annual MIP rate table (Mortgagee Letter 2023-05)

Annual MIP pricing depends on the loan term, the base loan amount, and the initial loan-to-value (LTV) ratio:

Loan Term	Base Loan Amount	Base LTV Ratio	Annual MIP	MIP Duration
> 15 years (e.g. 30 yr)	≤ $726,200	> 90% (e.g. 96.5%)	0.55% (55 bps)	Life of loan
> 15 years (e.g. 30 yr)	≤ $726,200	≤ 90%	0.50% (50 bps)	11 years
> 15 years	> $726,200	> 95%	0.75% (75 bps)	Life of loan
> 15 years	> $726,200	≤ 95%	0.70% (70 bps)	Life of loan
≤ 15 years	≤ $726,200	> 90%	0.40% (40 bps)	Life of loan
≤ 15 years	≤ $726,200	≤ 90%	0.15% (15 bps)	11 years

Step-by-step worked example

Consider a typical scenario: buying a home for $350,000 using a 30-year fixed FHA loan with the minimum 3.5% down payment at a 6.5% interest rate.

Down payment: 3.5% of $350,000 is $12,250.
Base loan amount: $350,000 minus $12,250 equals $337,750. The base LTV is 96.5%.
Upfront MIP (1.75%): $337,750 multiplied by 1.75% equals $5,910.63. Financing this premium brings the total financed loan balance to $343,660.63.
Monthly principal and interest (P&I): Amortizing $343,660.63 at 6.5% annual interest over 360 monthly payments produces a base mortgage payment of $2,172.17 per month. You can compare this amortized installment with the general EMI calculator.
Monthly MIP: Because the base loan is under $726,200 and the base LTV exceeds 90%, the annual MIP rate is 0.55%. Multiplying $343,660.63 by 0.55% and dividing by 12 yields $157.51 per month.
Escrow (Taxes & Insurance): Assuming an annual property tax rate of 1.25% ($364.58/mo) and homeowners insurance of $1,200 per year ($100.00/mo), the total monthly housing payment equals $2,794.26.

FHA vs conventional mortgage: which is better?

Choosing between an FHA mortgage and a conventional loan depends on your credit profile, available savings, and long-term plans:

Credit Score Flexibility: FHA guidelines allow credit scores down to 580 with 3.5% down, and down to 500 with 10% down. Conventional loans typically require a minimum credit score of 620, with competitive rates requiring 740 or higher.
Mortgage Insurance Removal: On conventional loans, private mortgage insurance (PMI) is automatically cancelled once your loan balance reaches 78% of the original property value. On an FHA loan with 3.5% down, annual MIP remains for the entire life of the loan. The only way to eliminate FHA MIP in that scenario is to refinance into a conventional mortgage once you have accrued at least 20% home equity.
Upfront Fees: Conventional loans do not charge an upfront mortgage insurance fee, whereas FHA loans assess a 1.75% UFMIP that increases your initial balance.

Frequently asked questions

What is the minimum down payment for an FHA loan?

The minimum down payment is 3.5% if your credit score is 580 or higher. If your credit score falls between 500 and 579, the minimum required down payment is 10%.

How much did FHA lower annual MIP in 2023?

Under HUD Mortgagee Letter 2023-05, effective March 20, 2023, the FHA reduced the annual MIP for most borrowers by 30 basis points (0.30%). For standard 30-year loans with 3.5% down, the rate dropped from 0.85% to 0.55%.

Can you cancel or remove FHA MIP?

If you put down 10% or more at purchase (LTV 90% or less), annual MIP cancels automatically after 11 years. If you put down less than 10%, MIP remains for the life of the loan. Borrowers frequently refinance into a conventional loan once they build 20% equity to remove mortgage insurance.

Can upfront MIP be financed into the loan?

Yes. The vast majority of FHA borrowers finance the 1.75% upfront MIP into their total loan balance rather than paying it out of pocket at closing.

Are there limits on how much I can borrow with an FHA loan?

Yes. The FHA sets annual county-by-county loan limits based on median home prices. In low-cost areas, limits are tied to a national floor, while high-cost metro areas have higher ceiling limits.

Resources and references

The formulas and methods in this calculator were checked against these independent sources.