Does a First-Time Buyer Pay FHA Mortgage Insurance With Little Down?

The Quick Read: Yes. Every FHA borrower pays FHA mortgage insurance, and being a first-time buyer has nothing to do with it. The insurance comes from the loan type, not from who you are or how much you put down. It has two parts: an upfront premium of 1.75% of the base loan, which is financed, and an annual premium between 0.15% and 0.75% of the balance, paid in monthly installments. Your down payment and loan term change how long and how much you pay, not whether you pay.

Why First-Time Status Doesn’t Matter

The trigger is the FHA program itself. FHA insures the lender against loss if a borrower defaults. The CFPB explains that this insurance protects the lender, and the cost is passed to the homeowner. The insurance does not protect you. A missed-payment foreclosure can still happen.

Nothing in the FHA rules waives the premium for first-timers. The exceptions are about loan type, not buyer type. HUD’s Mortgagee Letter 2023-05 lists them: certain streamline and simple refinances of FHA loans endorsed on or before May 31, 2009, plus a few special-program loans, such as Hawaiian Homelands and Indian Lands. A buyer purchasing a home with a new FHA loan falls in none of those groups.

Here’s where the confusion starts. Many people learn about mortgage insurance through conventional loans, where it is tied to putting less than 20% down. Some pages blur the two. On a conventional loan, a bigger down payment can make private mortgage insurance go away. On FHA, a bigger down payment never removes the premium. It only changes the cost and the duration. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.

What “Little Down” Means on an FHA Purchase

The program’s draw is low cash to close. Across the wholesale programs Lendmire places FHA files with, maximum financing is 96.5%, with a 3.5% minimum investment based on the lesser of price or appraised value. That tier starts at a decision score of 580. HUD itself has a tier for scores of 500 to 579 that requires 10% down, but the lenders in Lendmire’s network start at 580. A buyer below that score won’t find a path through these particular programs. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.

Other points on a purchase:

• The home must be your principal residence, one to four units.
• A non-occupant co-borrower is allowed.
• Seller or other interested-party contributions can go up to 6% of the price.
• County loan limits apply and change every year.

Those figures are subject to lender guidelines and full file review. Nothing here is a commitment to lend.

Lendmire’s FHA loan programs page covers the program basics if you want the full outline before going further.

The Two Parts of FHA Mortgage Insurance

FHA charges two separate premiums. Treat them as two different decisions on your file.

The upfront premium is 1.75% of the base loan amount for all mortgages, per the HUD letter above. Because it is financed, you don’t pay it at the closing table. It is added to the loan balance. That keeps cash to close low, but you pay interest on it for as long as you hold the loan. Your final loan amount ends up above the base amount.

The annual premium is spread across the year and collected with each monthly payment. It sits inside the housing payment, so it counts toward your debt ratios. That matters. A higher premium means a higher payment, and a higher payment lowers how much house you can qualify for.

HUD cut the annual premium for case numbers endorsed on or after March 20, 2023. HUD’s announcement described a 30 basis point reduction and estimated that about 850,000 borrowers would benefit. Older articles that quote the previous, higher standard figure are out of date.

What Sets Your Annual Premium?

Three things: the loan term, the base loan amount, and your loan-to-value ratio. Your credit score does not price the premium. The score decides eligibility and the minimum down payment, but it doesn’t move the insurance cost.

That’s a useful point for a first-time buyer comparing programs. On conventional loans, a stronger credit score can lower the mortgage insurance cost. On FHA, two buyers with the same term, loan amount and LTV get the same premium schedule, whatever their scores.

LTV comes from the FHA appraisal, which sets the value used in the calculation. So the appraisal does more than confirm the price. It feeds directly into your insurance tier.

How Long You Pay: The Duration Rule

Cost and duration are separate. A buyer can control one more easily than the other.

On a thirty-year loan:

• Above 90% LTV (less than 10% down), the annual premium lasts for the full term.
• At or below 90% LTV (10% or more down), it ends after eleven years. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.

Most buyers using the 3.5% minimum investment land in the first group. The premium stays for the life of the loan, so the exit isn’t removal. It is a refinance, a sale, or a payoff.

Say a first-time buyer is choosing between putting 3.5% down and stretching to 10% down. The 10% option does not remove the insurance, but it changes the schedule: the annual premium would stop after eleven years rather than running to the end of the term. That is a real tradeoff against keeping cash in the bank for repairs and moving costs. Neither choice is wrong. They depend on what else the money has to do. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.

What This Looks Like in a Real File

Picture a buyer at a decision score of 590 who wants the minimum investment on a single-family home. No dollar figures needed to see the mechanics.

1. The buyer puts 3.5% down, so financing is at the 96.5% maximum. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.

2. The 1.75% upfront premium is added to the base loan, so the final balance sits above 96.5% of the price.

3. The annual premium is set in the higher tier because LTV is above 90%.

4. That annual premium is paid monthly and stays for the term.

5. Total housing payment, including the premium, is run against the 31/43 ratio pair.

The base ratio pair is 31/43 (housing to total) with no compensating factors. Documented compensating factors can reach 40/50 at the top tier, and the automated finding governs most files. Because the premium is part of the housing payment, it pushes the first ratio up. A buyer already near the line sometimes finds that the premium is what decides the file.

FHA vs. Conventional for a First-Timer

The honest comparison isn’t “which has insurance,” since both can carry it. It’s which one behaves better on your specific credit and down payment.

FHA standards are generally more flexible than conventional ones. That flexibility is the trade. You accept insurance that stays whatever your down payment, and in return the program accepts files that might struggle elsewhere.

A buyer with a strong score and a decent down payment often finds conventional cheaper over time because the insurance can drop off. A buyer with a middling score and thin savings often finds FHA is the one that works. It’s a real toss-up in the middle. Run both against your actual numbers before choosing. Lendmire’s piece Can a Credit-Floor Jumbo Buyer Put Less Down and Skip Mortgage Insurance? covers a different loan type where that question comes up.

Ways to Reduce or Exit the Cost

You can’t waive the premium. You can shape it.

• Put more down. Reaching 10% down on a thirty-year loan changes the duration, as covered above.
• Choose the term carefully. Term is one of the three premium inputs.
• Use assistance where it fits. Down payment assistance can help you reach a higher down payment without draining savings. Programs differ on whether they are open to all buyers or limited to first-timers.
• Plan the exit. If the premium lasts for the term, the way out is a refinance once you have enough equity, or a sale. Track your equity as the balance drops and values change. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.

One note on FHA-to-FHA refinances. The FHA Streamline refinances an existing FHA loan with no appraisal, a limited credit review and a net tangible benefit, per the FDIC streamline summary. The premium continues on that route. So a streamline lowers cost through a different term or payment, not by ending the insurance. Leaving FHA entirely means a different loan type, which needs its own qualification.

Myths That Cost Buyers Money

• “20% down removes it.” False on FHA. The premium applies at any down payment.
• “It’s PMI.” On FHA it is called MIP. PMI is the conventional term.
• “It protects me.” It protects the lender.
• “First-timers get a waiver.” No such waiver exists.
• “My credit score sets my premium.” It sets eligibility, not the premium.
• “580 means any lender will approve me.” Some lenders set a higher floor than HUD’s minimum. A score at the line is not an approval, and every file is subject to lender guidelines and review.
• “The old standard figure still applies.” The reduction took effect for endorsements on or after March 20, 2023.

Questions to Ask Your Loan Officer

Before you commit, ask these and expect specifics tied to your file:

• What is my annual premium tier, and what sets it?
• Will the premium last for the full term on my down payment?
• Is the upfront premium financed, and what is my final loan balance?
• How does the premium affect my housing ratio?
• What would a higher down payment change on duration?
• Where will insurance appear on my Loan Estimate and Closing Disclosure?

Mortgage insurance shows up as its own line on both disclosures. Compare the Loan Estimate to the Closing Disclosure and ask about any change.

Key Terms Defined

MIP (mortgage insurance premium): The FHA charge that protects the lender, made up of an upfront and an annual part.

Upfront premium: The one-time 1.75% charge on the base loan, which is financed into the balance.

Annual premium: The ongoing charge, between 0.15% and 0.75% of the balance, collected monthly.

LTV (loan-to-value): The loan balance as a share of the home’s value, which decides the annual premium tier and duration.

Base loan amount: The loan before the financed upfront premium is added.

Net tangible benefit: The test a streamline refinance must meet to show the borrower gains from the change.

For your own numbers, request a scenario review with Lendmire.

About Lendmire

Lendmire, NMLS# 2371349, is a mortgage brokerage with consumer lending licenses in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending partners, and each application is reviewed individually by the lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. CFPB – What is an FHA loan?

2. HUD Mortgagee Letter 2023-05

3. HUD FHA INFO 2023-11

4. FDIC FHA streamline refinance summary