How to Calculate MIP on an FHA Loan

This Federal Housing Administration (FHA) mortgage insurance premium (MIP) calculator accurately displays the cost of mortgage insurance for an FHA-backed loan. Unlike most private mortgage insurance (PMI) policies, FHA uses an amortized premium, so insurance costs change along with your loan amount. The calculator allows you to see total mortgage costs including your MIP charges over any time frame you wish.

Borrowers with small downpayments do have choices available to them outside of the FHA program. This unique calculator allows cost comparisons of FHA-backed loans against “traditional” 3 percent down offers from Fannie Mae and Freddie Mac as well as the newer low-cost HomeReady and HomePossible choices, displaying the costs of each in a simple side-by-side format. To give a true picture of loan costs over time, comparison calculations take into account the costs and future cancellation points for traditional PMI.

This unique Federal Housing Administration (FHA) calculator accurately shows the costs of selecting an FHA-backed mortgage to finance your home. It uses the formula provided by Housing and Urban Development (HUD) to properly calculate FHA mortgage insurance premium costs over time. Unlike most traditional private mortgage insurance (PMI) policies, FHA uses an “amortized” premium structure, causing your MI costs to change over time as your loan balance declines.

Borrowers with small downpayments arent limited to an FHA-backed mortgage. Fannie Mae and Freddie Mac have (almost) always backed low-downpayment mortgages called “Conventional 97s,” where a borrower can place a downpayment as small as 3 percent. These are subject to risk-based pricing adjustments that can raise the cost, making them less useful to borrowers with limited funds and lower credit scores.

In recent years, Fannie Mae and Freddie Mac developed new products for low- and moderate-income buyers; HomeReady and Home Possible (HR/HP) programs feature low (or no) risk-based add-ons to the rate or fees the borrower must pay and also reduced PMI premiums.

Our calculator and low down-payment comparator enable you to compare these offerings on a side-by-side basis. Youll learn exactly how each of these choices could affect your housing costs during the time you expect to own your home.

Getting an FHA loan can be a great way for many homebuyers to purchase a home with a low down payment. However, FHA loans require you to pay mortgage insurance premiums (MIP) to protect the lender in case you default on the loan. Calculating your monthly MIP is an important part of determining your total monthly payment when getting an FHA loan.

In this comprehensive guide, we’ll walk through exactly how to calculate your MIP for an FHA loan.

What is MIP?

MIP stands for mortgage insurance premium. It’s an insurance payment that you make to the Federal Housing Administration (FHA) as part of your FHA loan.

MIP protects the lender in case you default on the loan All FHA loans require MIP, and it’s typically included in your monthly mortgage payment

There are two types of MIP on an FHA loan:

Upfront MIP (UFMIP) – A one-time payment made at closing.
Annual MIP – An ongoing monthly payment for the life of the loan.

Understanding how both of these MIP payments are calculated is key to determining your total monthly payment.

Upfront MIP (UFMIP)

The upfront MIP is a percentage of your base loan amount that you pay at closing.

Here are the current UFMIP rates:

FHA Purchase Loans:

1.75% for all loan terms

FHA Streamline Refinance:

0.01% for all loan terms

So for example, if you get a $200,000 FHA 30-year fixed-rate purchase loan, your UFMIP would be:

Loan Amount: $200,000
UFMIP Rate: 1.75%
UFMIP = $200,000 x 0.0175 = $3,500

This $3,500 would be paid at closing.

Calculating Annual MIP

The annual MIP is paid monthly along with your mortgage payment. It is calculated as a percentage of your loan amount based on the following factors:

Loan term – 30-year or 15-year loan
Loan-to-value (LTV) ratio – Down payment percentage
Base loan amount – Loan amount without UFMIP

Here are the current annual MIP rates:

30-Year Loans:

0.55% for LTV <= 90%
0.70% for LTV > 90% but <= 95%
1.05% for LTV > 95%

15-Year Loans:

0.45% for LTV <= 90%
0.65% for LTV > 90%

To calculate your monthly MIP payment, follow these steps:

Determine your loan term and down payment percentage to find your LTV ratio.
Find the correct MIP rate based on your loan term and LTV ratio.
Multiply your base loan amount by the MIP percentage to get your annual MIP.
Divide the annual MIP by 12 to get the monthly MIP payment.

Let’s look at an example:

30-year fixed FHA loan
Sales Price: $200,000
Down Payment: 3.5% ($7,000)
Base Loan Amount: $193,000 (Sales price minus down payment)

Down payment is 3.5% so LTV ratio is 96.5%
Since this is a 30-year loan with LTV over 95%, MIP rate is 1.05%
$193,000 x 1.05% = $2,026.50 annual MIP
$2,026.50 / 12 = $168.88 monthly MIP

So for this loan, the monthly MIP payment would be $168.88.

How Long Do You Pay MIP?

For FHA loans with less than a 10% down payment, you will pay the annual MIP for the entire term of the loan.

However, if you put down 10% or more, you can request to have your MIP canceled when your loan reaches 78% loan-to-value. This is usually around 11 years into the loan.

You can request cancellation by contacting your mortgage servicer. They will evaluate if you meet the requirements for removal.

MIP Cost Example

Let’s look at an example to see the total cost of MIP on a 30-year FHA loan with a 3.5% down payment:

Sales Price: $200,000
Down Payment: 3.5% ($7,000)
Base Loan Amount: $193,000
UFMIP Rate: 1.75%
UFMIP: $193,000 x 0.0175 = $3,377.50
Annual MIP Rate: 1.05%
Monthly MIP: $193,000 x 0.0105 / 12 = $168.88

Total Upfront Cost at Closing

UFMIP = $3,377.50

Total Monthly Cost

Principal & Interest = $940.22
Monthly MIP = $168.88
Total = $1,109.10

Total Insurance Cost Over 30 Years

Monthly MIP = $168.88 x 12 = $2,026.50 per year
$2,026.50 x 30 years = $60,795 total MIP

As you can see, the total insurance premiums add significantly to your total costs over the life of an FHA loan. This is why it can make sense to make a larger down payment if possible to reduce your monthly MIP.

The Bottom Line

Calculating your MIP is a key step to determine your total monthly mortgage payment on an FHA loan. Be sure to factor in both the upfront and annual MIP based on your specific loan details. And remember, while MIP increases your costs, it also makes it possible for you to get approved for an FHA loan with a low down payment.

How to use HSH’s FHA mortgage calculator

Comparing low-downpayment-mortgage options is at the heart of this calculator. To start, add in the dollar amount of the home you hope to buy in the field for “purchase price.” We supply a suggested interest rate for you, but if your rate is different, simply change it in the interest rate field.

Choose your downpayment from the dropdown. Using your downpayment percentage, the calculator returns the dollar amount youll need, which is based on the purchase price you entered.

For FHA programs, financing the up-front mortgage insurance premium is common to help buyers conserve funds. If you prefer, you can pay the up-front MIP out-of-pocket for about 1.75% of the loan amount you are borrowing. In the dropdown, select “Yes” to finance it or “No” to pay it out-of-pocket.

For “product choice,” please select among the five common options. Fixed-rate mortgages (FRMs) longer than 20 years should select “FRM 20.01+ yrs”; this includes costs for 30-year FRM. For FRMs with terms of 20 years or less, select “FRM 20.01- yrs”. Three varieties of hybrid adjustable rate mortgages (ARMs) can also be selected, including those with 5-, 7- and 10- year fixed-rate periods. In each of the ARM options, the interest rate remains fixed for the initial loan period, say five (or seven or ten) years, then adjusts every year for the remainder of the 20-year loan period.

For “credit rating,” choose a score “bucket” from the dropdown that is closest to the one you think applies to you. Although the FHA program does not use risk-based pricing that increases loan costs as your credit score declines, other low-downpayment choices in the market do, and it is these programs against which we compare costs for you. If your credit isnt so good, an FHA-backed mortgage might be your best option.

For “compare costs over what number of years?” indicate the period of time you expect to own your home. Use the incrementer at the end of the field to add or subtract years. As you do, note that the calculations presented to the right change as you add or subtract years.

Optionally, provide a guesstimate of what you think may happen to home values over the time period you entered in “compare costs over what number of years?” For low-downpayment mortgage products that require PMI, home price appreciation can speed up the time it takes to reach a point where you can cancel such a policy, trimming your monthly mortgage cost.

Once youve made your selections, costs for your FHA mortgage appear automatically on the right side of the screen.

Now, compare FHA costs against another popular choice in the market, “Conventional 97” (3% down) financing. In the box at the bottom, where it says “Want to compare FHA against other low downpayment mortgage options?” click “Yes.”

Conventional 97 mortgages require just 3 percent down and are available with no special restrictions all across the country. However, low downpayment mortgages carry more risks to the lender, and higher risks can being higher costs, especially if a borrower has a less-than-perfect credit score. If your credit is good but your ability to save up a downpayment is limited, a Conventional 97 loan might be a good choice for you.

Unlike a low-downpayment FHA mortgage, Conventional 97s use traditional PMI policies; these can be canceled at a future time after the loan passes an 80% loan-to-value (LTV) ratio. This occurs at a future intersection of paying down the loans outstanding balance and how quickly the value of your home rises. PMI cancellation could be as little as two years away.

Comparing HomeReady and Home Possible mortgages Aimed at low-to-moderate income buyers or targeted to special geographic locations is easily accomplished on the website. HR/HP mortgages allow for just a 3 percent down payment but these loans have low or no risk-based premiums that drive up mortgage costs, so qualifying borrowers may find these as affordable as FHA-backed loans. Unlike the FHA program, though, HR and HP mortgages allow for PMI to be canceled at a future point, so mortgage costs might be lower in the future.

In addition to meeting income or geographic requirements, HR/HP borrowers must complete an approved homebuyer education course. FHA Mortgage calculator input definitions

Purchase price This is the dollar amount of the home you wish to buy.

Interest rate The loans interest rate. We provide the average conforming 30-year fixed-rate mortgage (FRM) interest rate as a starting point; this can be changed as needed. The interest rate is the main factor used by the mortgage payment calculator to determine what your monthly payment and costs will be over time.

Downpayment For comparison purposes, the calculator allows four common choices of 3.5%, 5%, 10% and 15% down. The availability of a small downpayment is the hallmark of the FHA program, and when a borrower puts 20% down or more, PMI is not required for conventional mortgage offerings, so there would be nothing to compare an FHA loan against.

For convenience, we produce the downpayment dollar amount for you based on your purchase-price input.

Finance up-front MIP? (Mortgage insurance premium) The FHA program requires payment of an up-front fee, currently 1.75% of the loan amount. However, to help keep out-of-pocket costs low, this amount can be financed as a part of the loan.

Product choice Mortgage loans come in a range of terms. Fixed-rate mortgages are most often found in 30, 20, 15 and 10-year terms; adjustable rate mortgages usually have total terms of 30 years, but the fixed interest rate period is much shorter than that, lasting from 1 to 10 years. The dropdown here allows for a choice of FRMs with terms greater or less than 20 years, and three common hybrid ARM terms.

Credit rating While the FHA program does not use risk-based pricing, which increases costs for borrowers with low credit score, low-downpayment programs that a borrower may also be interested in do use them. For a most accurate comparison, please choose a credit score “bucket” that is closest to the score you have.

Calculate costs over what number of years? How long you do you expect to be in your home? Please choose a number of years so that we can calculate your mortgage insurance and loan costs over the time you expect to remain in your home.

Expected annual home price appreciation? Along with amortization (the process of paying off your loan) what happens to home prices affects how quickly you may be able to cancel private mortgage insurance (PMI) for low-downpayment programs that are comparable to FHA. If youre not sure what may happen in the future, just leave the figure at 0; the calculation will provide the number of months when you should have paid down the loan to an amount that allows you to discuss canceling a PMI policy with your lender.

How to Calculate Mortgage Insurance on an FHA Loan? | #loanwithjen #fhaloans

FAQ

What is the current MIP rate for FHA?

Loan Amount	Loan-to-Value Ratio	Annual MIP
$726,200 or less	95% or more	0.55%
$726,200 or more	90% or less	0.70%
$726,200 or more	90%-95%	0.70%
$726,200 or more	95% or more	0.75%

How to calculate monthly mortgage insurance payment?

The lender calculates the PMI payment by multiplying your loan amount by the PMI rate and then dividing by 12. Suppose the loan amount is $475,000, and the PMI rate is 0.45%. In that case, the lender calculates your monthly PMI payment as follows. Then, the lender adds $178.13 to your monthly mortgage payment.

How much is MIP on an FHA loan with taxes?

This ranges from 0.40% to 0.75% depending on your down payment, home price and loan term. Upfront MIP: You can think of this as the FHA funding fee. 1.75% of the loan amount is due at closing – most people finance it together with the mortgage.

How to avoid MIP on an FHA loan?

If you make at least a 10% down payment on an FHA loan, you’ll only need to pay MIP for the first 11 years of the loan term. If you put less than 10% down, you’ll pay MIP for the entire life of your loan.

How do I calculate my FHA MIP?

Here’s an example of how to calculate the FHA MIP (30 fixed rates): Divide $1080.076 by 12 to get $90.00 per month as the yearly MIP cost. $136.71 is added to your monthly mortgage payment. The amount of money you will spend on the property is one of the most significant elements to consider when selecting mortgage insurance coverage.

What is a mortgage insurance premium (MIP) calculator?

What is an FHA mortgage insurance premium (MIP)?

Compared to other mortgage options, FHA loans typically have more lenient standards for borrowers, like credit score and down payment requirements. Unlike other types of loans, FHA loans require borrowers to pay a mortgage insurance premium (MIP). An FHA MIP is an additional payment you make to secure the mortgage loan.

How much does a MIP cost on a FHA loan?

Your FHA loan MIP will involve two payments: an upfront premium and an additional annual payment. The amount you’ll pay for both depends on your loan amount. Your upfront MIP payment will be equal to 1.75% of the total value of your loan. For example, if you borrow $150,000 for your mortgage, you’ll make an upfront payment of $3,500.

What’s the difference between PMI and MIP on an FHA loan?

Check out today’s mortgage rates on an FHA loan. Both private mortgage insurance (PMI) and mortgage insurance premiums (MIP) are types of insurance that protect the lender when a borrower defaults on their mortgage. The main difference is that PMI applies to conventional loans, while MIP applies to FHA loans.

Do FHA approved lenders add MIP to your monthly mortgage payment?

Most FHA-approved lenders add your annual MIP to your monthly mortgage payment. To find out how much you’ll pay each month, you can apply with your lender. Once you’re initially approved, you’ll receive a loan estimate with your monthly mortgage payment and annual MIP.