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Mortgage insurance is meant to offset a lender’s risk in the event of borrower default. In this case, because the government is backing the loan, the mortgage insurance costs are structured differently. The FHA requires both upfront and annual MIP (mortgage insurance premium) for all FHA loan borrowers, regardless of the amount of down payment:
| Upfront MIP (UFMIP) | Annual MIP |
|---|---|
| A one-time payment equal to 1.75% of the loan amount, regardless of LTV | A recurring fee built into every monthly mortgage payment amount |
| UFMIP can be paid at closing or rolled into the cost of the loan | Calculating the cost of monthly MIP depends on the size of a loan’s down payment: For a down payment between 3.5%—5%: 0.85% of loan amount divided by 12 For a down payment 5% or higher: 0.80% of loan amount divided by 12 |
| If rolled into loan, this amount won’t count toward the LTV of the loan or county FHA loan limit | The duration of annual MIP payments depends on down payment amount: With down payments less than 10%, MIP will last throughout the life of the loan (until it’s sold, paid off, or refinanced) With down payment of 10% or more, MIP will last 11 years |
Think an FHA loan might be the right fit for you? Pre-approval takes as little as 3 minutes and can give you an idea of how much you can afford.