FHA Mortgage Insurance Cost: What You’ll Pay

FHA Mortgage Insurance Cost: What You’ll Pay

Your FHA mortgage insurance cost comes in two pieces: an upfront premium of 1.75% of your loan amount, and a monthly premium built into your payment. On a $250,000 home with 3.5% down, that’s about $4,222 upfront and roughly $110 a month. It sounds like a lot until you see what it’s buying you and how long you’d actually pay it.

What You Need to Know About FHA Mortgage Insurance Cost

• FHA mortgage insurance has two parts: an upfront premium and a monthly premium
• The upfront premium is 1.75% of your loan amount, and you can finance it instead of paying cash
• The monthly premium is a yearly percentage of your loan, paid in 12 pieces. On most 30-year loans under $726,200, that’s 0.50% to 0.55% a year
• Under 10% down, you pay the monthly premium for the life of the loan
• With 10% or more down, it drops off after 11 years
• You can often refinance out of it once you reach about 20% equity

Want to see what your FHA mortgage insurance cost looks like with your numbers? Book a time to talk it through with us. No pressure, just a clear picture before you commit to anything.

What Is Mortgage Insurance, and Why Does FHA Require It?

Mortgage insurance protects your lender, not you. If a borrower can’t pay the loan back, it covers part of that loss. FHA loans require it because they let you buy with a smaller down payment and a lower credit score than most conventional loans allow. That’s a bigger risk on paper for the lender.

That’s the tradeoff. FHA opens the door wider, and mortgage insurance is the cost of walking through it.

Here’s the deal: most buyers I talk to don’t mind paying it once they understand what it’s doing for them. It’s the reason they can buy a home now instead of waiting five more years to save 20% down. I think about my own mom a lot when I explain this part. She never got the chance to buy a home, and nobody ever sat her down and walked her through what her options actually were. That gap is a big part of why I coach every client through this instead of just handing them a number.

How Is Your FHA Mortgage Insurance Cost Calculated?

Your FHA mortgage insurance cost has two components, and they’re calculated differently.

The upfront premium (UFMIP) is 1.75% of your loan amount. You can pay it in cash at closing or roll it into your loan. Most buyers finance it. Your down payment doesn’t change the 1.75%. It’s the same whether you put down 3.5% or 10%. What changes is your loan amount, and that’s what the 1.75% gets calculated on.

The monthly premium (annual MIP) is a percentage of your loan, charged yearly and collected in your monthly payment. Your rate depends on your loan amount, your down payment, and your loan term. For a 30-year loan at or under $726,200, the current schedule looks like this:

• Less than 5% down: 0.55% a year, for the life of the loan
• 5% to under 10% down: 0.50% a year, for the life of the loan
• 10% or more down: 0.50% a year, for 11 years

Loans above $726,200 carry higher rates. HUD sets these premiums and changes them from time to time, so we check the current schedule against every quote. Your loan officer should walk you through your exact monthly figure before you sign anything, not after.

Real Numbers: What FHA Mortgage Insurance Cost Looks Like on a $250,000 Home

Say you buy a $250,000 home with 3.5% down, which is $8,750. You’d borrow $241,250.

• Upfront premium: 1.75% of $241,250 is $4,221.88. If you finance it, that adds roughly $25 a month to your payment at a 6% rate over 30 years.
• Monthly premium: at 0.55% a year, that’s $1,326.88 a year, or about $110 a month to start. It dips slightly as your balance comes down.

This is an estimate for illustration only. Actual rates, payments, and eligibility vary based on your credit score, loan type, down payment, and current market conditions.

Does a Bigger Down Payment Lower Your FHA Mortgage Insurance Cost?

Yes, in three ways. A smaller loan lowers both premiums. At 5% down, your annual rate drops from 0.55% to 0.50%. And at 10% down, the monthly premium ends after 11 years instead of lasting the whole loan.

On that same $250,000 home, 10% down is $25,000. Your loan is $225,000, the upfront premium is $3,937.50, and the monthly premium is about $94 for 11 years. That’s real savings. It’s also $16,250 more cash out of your pocket at closing, and that money may be doing more good as an emergency fund. It depends on your situation, which is why we run the numbers a few different ways before you decide.

Will You Pay FHA Mortgage Insurance Forever?

Not necessarily. Put down less than 10% and the monthly premium stays for the life of the loan. Put down 10% or more and it comes off after 11 years.

If you’re already in an FHA loan and want out sooner, refinancing into a conventional loan is usually the path. Once you have about 20% equity, most conventional loans don’t require mortgage insurance. A refinance has its own costs, and whether it makes sense depends on your credit, your equity, your income, and where rates sit at the time. We’d run the break-even together before you make a move either way.

Questions We Hear a Lot

What is mortgage insurance?
It’s coverage that protects your lender if you’re unable to repay your loan. You pay the premiums, but the protection is for the lender’s side of the deal.

How much is FHA mortgage insurance?
The upfront premium is 1.75% of your loan amount. The monthly premium is 0.50% to 0.55% a year on most 30-year loans under $726,200. On a $241,250 loan with 3.5% down, that’s about $110 a month. Your exact number depends on your loan amount, down payment, and term.

Will I always have to pay FHA mortgage insurance?
If you put down less than 10%, yes, for the life of the loan. With 10% or more down, it ends after 11 years.

Can I get rid of FHA mortgage insurance later?
Often, yes. Once you have about 20% equity, you can refinance into a conventional loan without mortgage insurance. Check the refinance costs first so you know it’s worth it.

What This Comes Down To

FHA mortgage insurance isn’t a hidden fee. It’s the cost of a program that opens the door for buyers who don’t have 20% saved up or who don’t have perfect credit. Every buyer deserves to understand exactly what they’re paying for and why before they sign, not after they’re locked into a loan they don’t fully understand.

If FHA sounds like a fit, learn more about our FHA loan programs or apply online when you’re ready. If you’d rather start with the basics, grab a copy of my book and go at your own pace. No pressure, just clarity, whenever you’re ready to talk.

Written by Ken Graczak, NMLS #184394 | CFR Mortgage | Bloomington, MN