Estimate your FHA monthly payment including upfront and annual mortgage insurance premium (MIP).
FHA loans: the 3.5% down path to homeownership
FHA loans are insured by the Federal Housing Administration and designed for buyers who cannot put 20% down. The headline feature is the minimum down payment: just 3.5% with a credit score of 580 or higher (borrowers scoring 500–579 must put 10% down). That low barrier is why FHA backs a large share of first-time purchases. The tradeoff is mortgage insurance premium — MIP — which every FHA borrower pays in two forms, and which is generally more expensive over time than conventional PMI.
Two kinds of MIP: upfront and annual
The upfront MIP is 1.75% of the base loan amount, and almost everyone finances it into the loan rather than paying cash — so a $337,750 loan becomes $343,661 before the first payment. The annual MIP is 0.55% of the loan balance per year for most borrowers (0.15% on 15-year loans at 90% LTV or below), divided into monthly installments. On that same loan, annual MIP adds about $157.51 a month. Unlike conventional PMI, the annual MIP rate does not improve with a higher credit score — it is the same for every FHA borrower in the same loan category.
How long MIP lasts — the key FHA tradeoff
Here is the catch that surprises many buyers: with less than 10% down, FHA annual MIP lasts for the life of the loan — all 30 years, totaling over $56,000 on the example above. Put 10% or more down and MIP ends after 11 years instead. Conventional PMI, by contrast, drops off automatically at 78% loan-to-value. That is why borrowers who expect their home to appreciate often plan to refinance out of FHA into a conventional loan once they reach 20% equity — the MIP savings usually dwarf the refinance costs.
What is FHA mortgage insurance (MIP)?
MIP is the FHA’s version of mortgage insurance, paid by every FHA borrower. It has two parts: an upfront premium of 1.75% of the loan (usually financed into the loan) and an annual premium — typically 0.55% of the balance — paid monthly with your mortgage payment.
How much is the upfront MIP?
1.75% of the base loan amount. On a $337,750 loan that is $5,910.63, which is added to the loan balance, making the financed total $343,660.63. You pay interest on that amount too, which is why the financed option costs more than paying it in cash at closing.
When does FHA MIP drop off?
With less than 10% down, annual MIP lasts for the life of the loan — it never drops off on its own. With 10% or more down, it ends after 11 years (132 payments). Many borrowers refinance into a conventional loan once they reach 20% equity to escape MIP entirely.
FHA vs. conventional — which is cheaper?
It depends on your timeline. FHA usually wins for buyers with small down payments and weaker credit, thanks to lenient approval and low down payment requirements. But conventional PMI drops off at 78% loan-to-value while FHA MIP with less than 10% down lasts forever — so for buyers who will build equity quickly, conventional is often cheaper long-term. Compare both with our calculators.
What credit score do I need for an FHA loan?
A score of 580 or higher qualifies for the minimum 3.5% down payment. Scores of 500–579 can still qualify but require 10% down. Below 500, FHA financing is generally not available — focus on credit repair first.