Do FHA Loans Have PMI? Learn About FHA Mortgage Insurance

Many homebuyers often ask us at Midwest Mortgage whether FHA loans come with PMI (Private Mortgage Insurance). It’s an important question, and understanding the distinction can save you confusion—and money—over the life of your loan.

FHA loans do require mortgage insurance, but technically, it's not called PMI. Instead, it's called MIP (Mortgage Insurance Premium). There are critical differences between PMI on conventional loans and MIP on FHA loans. Let’s explore exactly what MIP is, how it works, and what you need to know as a current or prospective FHA borrower.

FHA Loans Require Mortgage Insurance—Always

When you finance a home with a conventional loan, PMI is only required if you put down less than 20% of the purchase price. However, FHA loans come with mandatory mortgage insurance, regardless of your down payment amount or home equity. This means even if you put down 20% or more on an FHA loan, you’ll still pay MIP.

With an FHA loan, there are two types of mortgage insurance:

• Upfront Mortgage Insurance Premium (UFMIP)
• Annual Mortgage Insurance Premium (MIP)

Let’s break down each type of FHA mortgage insurance and how it affects your total loan cost.

Upfront Mortgage Insurance Premium (UFMIP)

UFMIP is a one-time fee due at closing, or it can be rolled into your loan amount. As of now, UFMIP is set at 1.75% of the base loan amount.

Example: If you finance a home for $300,000 using an FHA loan, your UFMIP would be $5,250. You can either pay this at closing or add it to your total loan balance.

Annual Mortgage Insurance Premium (MIP)

This is a recurring cost paid monthly as part of your mortgage payment. The amount of MIP you pay depends on:

• The base loan amount
• Your loan-to-value ratio (LTV)
• The length of your loan term

For a standard 30-year FHA loan with a 10% down payment, your annual MIP is typically 0.50% of the loan amount.

Example:
Loan Amount: $250,000
Down Payment: 10%
LTV: 90%
MIP: 0.50% = $1,250 annually = $104.17/month

This monthly payment continues for at least 11 years and in many cases, for the life of the loan, depending on your LTV ratio and loan term.

How MIP Differs from PMI

Recent Reduction in FHA Mortgage Insurance Premiums

Good news for new FHA borrowers: As of March 20, 2023, the Department of Housing and Urban Development (HUD) reduced annual MIP rates by 0.30 percentage points for most new FHA loans. This reduction is estimated to save homeowners an average of $876 per year.

Important Note: This reduction only applies to new loans. If you already have an FHA mortgage, these savings will not affect your current premium rate.

How Long Do You Have to Pay FHA Mortgage Insurance?

The length of time you are required to pay MIP depends on your down payment and loan term:

• If your LTV is greater than 90%: You will pay MIP for the life of the loan.
• If your LTV is 90% or less: MIP ends after 11 years.

This differs significantly from conventional PMI, which typically automatically cancels once you reach 22% equity or can be removed by request at 20% equity.

Can You Eliminate FHA Mortgage Insurance?

Yes—but not through FHA itself. The most common method is to refinance into a conventional loan once you’ve gained sufficient equity in your home.

Here’s how refinancing works:

1. Build at least 20% equity in your home.
2. Refinance to a conventional mortgage with your lender.
3. Once the new conventional loan is active, PMI may not be required.

This approach can save you hundreds or even thousands of dollars annually, especially if you initially obtained your loan when MIP rates were higher.

Why Choose FHA Loans Despite Mortgage Insurance?

FHA loans are ideal for:

• Borrowers with low credit scores
• Buyers who can't afford a large down payment
• Individuals with limited financial history

While MIP is a cost, FHA loans still offer competitive interest rates, lower barriers to approval, and flexible underwriting guidelines, making homeownership more accessible to many Americans.

Talk to Midwest Mortgage for Personalized FHA Loan Guidance

At Midwest Mortgage, we help clients navigate every aspect of the FHA loan process—including mortgage insurance costs. Our experienced advisors can help you:

• Estimate your exact UFMIP and MIP payments
• Explore options for refinancing into a conventional loan
• Understand how long you’ll need to pay MIP
• Find the right home loan strategy for your goals

If you’re considering an FHA loan or already have one, understanding your mortgage insurance responsibilities is essential for making smart, cost-effective decisions. At Midwest Mortgage, we’re here to guide you every step of the way.

FAQs about FHA Loan Mortgage Insurance

1. Do all FHA loans require mortgage insurance?

Yes, all FHA loans come with mortgage insurance, regardless of your down payment or credit score.

2. Is FHA mortgage insurance the same as PMI?

No. FHA loans require MIP (Mortgage Insurance Premium), while conventional loans require PMI (Private Mortgage Insurance).

3. Can I get rid of FHA MIP without refinancing?

Only under specific circumstances. If your LTV is 90% or less at loan origination and you have a 30-year loan, you may stop paying MIP after 11 years. Otherwise, it continues for the life of the loan.

4. How much is FHA mortgage insurance monthly?

It depends on your loan amount, term, and down payment. On a $250,000 loan with 10% down, you’d pay around $104.17/month.

5. Is FHA mortgage insurance tax deductible?

It may be, depending on current tax laws and your income level. Consult with a tax professional to determine your eligibility.

6. Will refinancing to a conventional loan eliminate MIP?

Yes, if you have at least 20% equity in your home, refinancing to a conventional loan can eliminate mortgage insurance altogether.