Unlike conventional loans where Private Mortgage Insurance (PMI) is removed once you reach 20% equity, FHA loans utilize Mortgage Insurance Premium (MIP). This insurance is required for all FHA-backed loans regardless of the initial equity percentage (down payment).
The calculation consists of two distinct parts: the Upfront MIP (UFMIP) and the Annual MIP. Following the March 2023 HUD update, rates have been significantly reduced to make homeownership more affordable.
The Two Components of FHA MIP
Upfront Mortgage Insurance Premium (UFMIP): This is a one-time fee equal to 1.75% of the base loan amount. Most borrowers choose to roll this into the total financed amount rather than paying it in cash at closing.
Annual MIP: This is an ongoing fee paid monthly. The rate is determined by the loan-to-value (LTV) ratio and the length of the amortization period.
2024 FHA MIP Rate Chart
Term
LTV Ratio
Annual MIP Rate
> 15 Years
≤ 95%
0.50%
> 15 Years
> 95%
0.55%
≤ 15 Years
≤ 90%
0.15%
≤ 15 Years
> 90%
0.40%
Example Calculation
If you purchase a home for $400,000 with a 3.5% initial equity ($14,000), your base financed principal is $386,000.
Upfront MIP: $386,000 × 1.75% = $6,755.
Annual MIP Rate: Since the LTV is 96.5% and the term is 30 years, the rate is 0.55%.
For most FHA borrowers today, if your initial equity percentage is less than 10%, the MIP remains for the entire life of the loan. If your initial equity is 10% or more, the MIP is typically removed after 11 years.