What Is an FHA Loan?
An FHA loan is a government-backed mortgage insured by the Federal Housing Administration. Because the FHA insures the lender against borrower default, lenders can offer more flexible qualifying requirements — including lower minimum down payments and credit score thresholds than conventional loans.
FHA loans are popular with first-time homebuyers and those with limited savings. The minimum down payment is 3.5% for borrowers with a credit score of 580 or higher. Borrowers with scores between 500 and 579 can still qualify but must put 10% down.
The trade-off is mortgage insurance. FHA loans require two types of MIP: an upfront premium paid at closing (or financed into the loan) and an annual premium paid monthly for as long as the loan or MIP term requires.
How FHA MIP Works
FHA mortgage insurance comes in two parts:
Upfront MIP (UFMIP): 1.75% of the base loan amount, paid at closing or financed into the loan. On a $290,000 loan, that's $5,075 added to your financed balance. This is the standard rate for most FHA loans and does not vary by down payment or credit score.
Annual MIP: Charged monthly as a percentage of the outstanding loan balance. As of March 2023, the standard rate for 30-year loans under $726,200 was reduced to 0.55% annually (previously 0.85%). The calculator defaults to 0.55% but you can adjust it in the Optional Details section for your specific loan parameters.
FHA MIP Rate Table (2023)
| Loan Term | Loan Amount | LTV | Annual MIP Rate |
|---|---|---|---|
| 30 years | ≤ $726,200 | > 95% (< 5% down) | 0.55% |
| 30 years | ≤ $726,200 | ≤ 95% (≥ 5% down) | 0.50% |
| 30 years | > $726,200 | > 95% | 0.75% |
| 30 years | > $726,200 | ≤ 95% | 0.70% |
| 15 years | ≤ $726,200 | > 90% (< 10% down) | 0.40% |
| 15 years | ≤ $726,200 | ≤ 90% (≥ 10% down) | 0.15% |
Source: HUD Mortgagee Letter 2023-05. Rates subject to change. Verify with your lender.
FHA MIP Cancellation Rules
Understanding when FHA MIP ends is critical to the total cost calculation:
- Down payment 10% or more: Annual MIP cancels after 11 years (132 payments), regardless of loan term.
- Down payment less than 10%, 30-year loan: Annual MIP is required for the entire loan term — it never cancels automatically. The only exit is to refinance into a conventional loan once you reach 20% equity.
- Down payment less than 10%, 15-year loan: Annual MIP cancels after 11 years.
This distinction makes the down payment decision more impactful on an FHA loan than it appears. Putting 10% down not only reduces the loan amount — it also triggers MIP cancellation after 11 years, potentially saving tens of thousands of dollars on a 30-year mortgage.
FHA vs. Conventional: When FHA Wins
| Scenario | FHA | Conventional |
|---|---|---|
| Credit score 580–619 | Qualifies at 3.5% down | Difficult or very high rate |
| Credit score 620–659 | Competitive rate | PMI rate may be higher |
| Credit score 700+, 10%+ down | Extra MIP cost | Often cheaper long-term |
| Down payment 3–5% | 3.5% minimum | 3% available (conventional 97) |
| Down payment 20%+ | UFMIP still required | No PMI required |
FHA is generally most advantageous for buyers with credit scores below 660 or those making minimum down payments who cannot qualify for competitive conventional pricing. Buyers with strong credit (700+) and moderate down payments often find conventional loans cheaper once total MIP costs are factored in.
Questions You Might Ask
What is the FHA upfront mortgage insurance premium?
The FHA upfront MIP is 1.75% of the base loan amount. It is nearly always financed into the loan rather than paid at closing. This means your actual loan balance is the home price minus down payment, plus 1.75%. On a $290,000 base loan, upfront MIP adds $5,075 — bringing the financed amount to $295,075. This higher balance is what your monthly P&I payment is calculated on.
How long do you pay MIP on an FHA loan?
It depends on your down payment and loan term. With 10% or more down, MIP cancels after 11 years regardless of loan term. With less than 10% down on a 30-year FHA loan, MIP is required for the life of the loan — the only way to eliminate it is to refinance into a conventional mortgage once you have sufficient equity. With less than 10% down on a 15-year FHA loan, MIP cancels after 11 years.
What is the current FHA annual MIP rate?
Since March 2023, FHA reduced its annual MIP to 0.55% for most 30-year loans under the conforming loan limit with less than 5% down — down from 0.85%. This reduction lowered the monthly MIP payment on a $300,000 loan by approximately $75/month. The rate varies by loan term, amount, and LTV; see the table above for current rates by scenario.
Is an FHA loan better than a conventional loan?
For buyers with credit scores below 660 or minimal savings, FHA can offer better access and pricing. The more lenient underwriting standards and lower minimum down payment (3.5%) make homeownership accessible earlier for many buyers. However, the mandatory MIP — especially on 30-year loans with less than 10% down — adds significant lifetime cost. Buyers with credit scores above 700 and 5–20% down should compare both options carefully, as conventional PMI is often cheaper and cancels automatically at 80% LTV.
Methodology
FiscalCalc's FHA loan calculator uses the standard fixed-rate amortization formula applied to the financed loan amount (base loan plus upfront MIP). Annual MIP is applied monthly to the original base loan amount per FHA guidelines. MIP cancellation rules reflect HUD's 2013 mortgagee letter (ML 2013-04) and 2023 rate reduction (ML 2023-05). Results are illustrative; your actual payment will depend on your lender's specific terms, escrow requirements, HOA fees, and applicable FHA guidelines at origination. All calculations run client-side in your browser. Last updated: May 2026.