How a Down Payment Sets When FHA Loan Mortgage Insurance Ends

The Quick Read: The size of your down payment at closing decides how long the annual premium stays on a newer FHA loan. Put down 10% or more on a 30-year loan, and the annual premium ends after 11 years. Put down less, and it lasts for the full term. Later appreciation and extra principal payments do not change that. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.

That is the whole rule in four sentences. The rest of this page covers how it works and where it bends. It also covers what the decision looks like when you are standing at the contract stage.

What Are the Two Premiums on an FHA Loan?

Every FHA loan carries two kinds of mortgage insurance premium (MIP). The upfront premium is 1.75% of the base loan amount. It is usually financed into the loan, so you pay it over time instead of at the table. The annual premium is billed monthly with your payment. It runs between 0.15% and 0.75% of the loan balance per year, depending on term, loan amount, and LTV.

Only the annual premium has a duration. The upfront premium is paid once, and nothing about your down payment makes it go away. Everything below is about the annual piece.

A quick note on vocabulary. People call this “PMI” all the time. Private mortgage insurance is the conventional-loan product, and it has its own cancellation rules. FHA insurance is MIP, and the two work differently. If a friend says “just drop the PMI at 20% equity,” that advice belongs to conventional loans, not yours.

Buyers assume that the premium will fall away once they hit 20% equity. For most newer FHA loans, it won’t.

How Does the Down Payment Set the Clock?

Your starting LTV picks the bucket, and nothing later moves you between buckets. LTV is the base loan divided by the property value. If you borrow 90% of the value, your LTV is 90%. A bigger down payment means a smaller loan against the same value, so a lower LTV.

For a 30-year loan with a case number assigned on or after June 3, 2013, HUD’s Mortgagee Letter 2013-04 sets two paths. At or below 90% LTV, the annual premium runs for 11 years. Above 90%, it runs for the full mortgage term. HUD’s own actuarial review of the FHA fund describes the same split. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.

Here is how that looks by down payment on a 30-year purchase loan:

Notice there is no middle ground. Nine percent down does not buy you a partial discount on duration. It sits above the line, so it gets the longer track. That is the cliff, and it is why the buyer at 9.5% down has a real decision to make. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.

One more detail helps buyers right at the edge. The test excludes the financed upfront premium. You can finance the 1.75% on top and still land in the 11-year bucket, as long as the base loan is at or below 90% of value. The same ML says it directly.

What Counts as Your Down Payment?

The only thing that matters for the clock is the base loan relative to value. Where the cash came from is a separate question. The size of the loan sets the bucket.

A few practical points follow from that:

• Gift or assistance funds. Ask your loan officer whether they count toward your minimum investment under the program you are using. For duration, what counts is that the base loan is smaller.
• Seller credits. A seller contribution covers closing costs, up to 6% of the price on the FHA programs Lendmire places. It does not shrink the base loan, so it does not move you to a lower bucket.
• The appraisal. The FHA minimum investment is figured on the lesser of price or appraised value. If the appraisal comes in under the contract price, your real LTV rises. A buyer planning exactly 10% down on the price may land just above 90% on the value. Ask the loan officer to confirm which value is used before you rely on the line.
• Financed premium. As noted, it stays out of the test. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.

Run this check before you sign a contract, not after the appraisal. Buyers right at the line should leave a small cushion above 10%.

What Does the Clock Look Like Month by Month?

For the 11-year track, annual premium is billed monthly from your first payment and stops after the 11th year of payments. Your servicer schedules the final premium month. You should see the premium line disappear from your payment after that, and your payment drops by that amount.

For the full-term track, the premium continues until the loan ends. The dollar amount does shrink slowly. The premium is figured on the balance, so as your balance falls, the monthly premium falls with it. The rate stays put, and the premium never turns off while the FHA loan is in place.

Locked at origination is the phrase to remember. Appreciation, a new appraisal, or extra principal payments do not move a post-2013 loan to a different track.

A Worked Example: Two Buyers, Same Home

Picture two buyers purchasing identical homes at the same price. Both choose 30-year terms. Both have scores that clear the 580 decision floor on the wholesale programs Lendmire works with.

Buyer One puts down the 3.5% minimum. The base loan is 96.5% of value. The annual premium is on the full-term track.

Buyer Two puts down 10%. The base loan is 90% of value. The annual premium ends after 11 years. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.

Here is the trade, in words. Buyer Two brings noticeably more cash to closing. In return, Buyer Two’s payment drops in year 12, while Buyer One’s carries the premium for as long as the loan stays FHA. Buyer Two also borrows less, so the premium is figured on a smaller balance from day one.

Who wins? It depends on how long each stays. If Buyer One sells or refinances out of FHA within a few years, most of the extra premium never gets paid. Then the minimum down payment may have been the better use of cash. If Buyer One keeps the loan for 20 years, the premium adds up to much more than Buyer Two paid. The trade is cash today against premium later, and your holding period decides it.

What If You Are Just Under the Line?

Say your plan is 8% down and the line is 10%. You have a few honest options. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.

1. Close the gap. The jump from 8% to 10% changes the duration, not just the premium size. Many buyers find a gift, savings, or a smaller purchase price that gets them there. Ask whether gift funds are allowed on your file.

2. Negotiate the price. A lower price at the same cash in hand raises your down payment percentage.

3. Accept the full-term track and plan an exit. Many buyers do this on purpose and refinance when equity allows. Just treat the refinance as a plan, not a promise. It depends on your credit, the value of the home, and market conditions when you apply.

4. Look at your ratios. The base debt-to-income pair on FHA is 31/43 (housing over total), and documented compensating factors can stretch it as far as 40/50 at the top tier. A larger down payment lowers your loan and may help the ratios.

Whether to put down the larger amount is a genuine toss-up for many buyers. The extra cash buys a shorter premium. But cash in reserve after closing has its own value, and a thin cushion is its own risk.

Where Does the General Rule Break?

Several edge cases change the answer.

Older loans. For loans with case numbers assigned before June 3, 2013, a different rule applied. HUD Handbook 4000.1 still holds it. On terms over 15 years, the annual premium is cancelled when the balance reaches 78% of the lesser of sales price or original appraised value, provided the borrower has paid it for at least five years. The handbook says new appraised values are not considered. HUD’s answer page on these loans adds that a borrower can ask the servicer to cancel early under set conditions, including no payment more than 30 days late in the prior 12 months.

The case number date, not the closing date. The date HUD assigned your case number decides which rule applies. A loan that closed later but carries an earlier case number can fall under the older regime. Your closing documents show the case number.

Shorter terms. On 15-year loans, the annual premium schedule and rates differ from the 30-year rules above. Ask the loan officer how your specific term is treated.

The 2023 premium cut. HUD’s Mortgagee Letter 2023-05 lowered annual premium pricing on most new loans. It changed the price tiers, not the duration. The 11-year and full-term lines are the same. The letter also lists exceptions, such as Section 247 Hawaiian Homelands loans and certain older streamline refinances. For current pricing tiers, read the letter itself.

Unit count. The duration rule is keyed to LTV and term, not the number of units. A one-to-four-unit owner-occupied home follows the same buckets. County loan limits apply and cap the loan amount. A larger down payment can bring a loan under the limit.

Rental or second home. Occupancy decides the leverage. FHA financing is for a principal residence you occupy, so a rental or second home needs a different loan.

Plan around the rules that exist today.

What Are Your Exits?

There are three ways the premium stops, and they work differently.

1. It expires on schedule. This is the 11-year track. Nothing to do except confirm your servicer drops it on time.

2. You refinance. A new loan gets a new case number and a new LTV test. A refinance into a conventional loan ends FHA premium. Conventional mortgage insurance may apply instead, depending on your equity at that point. Refinancing back into FHA restarts the duration clock, and the FHA streamline refinance of an existing FHA loan keeps the premium going. The rate-and-term FHA refinance with an appraisal reaches 97.75% on a principal residence you have occupied for the previous 12 months. The FHA cash-out reaches 80% on a home you have owned and occupied for 12 months before the case number.

Refinancing comes with closing costs, and your costs and terms depend on the market on the day you apply. Weigh those against the premium you would otherwise pay. For more on what changes when you leave FHA, see Lendmire’s piece Cash-Out Refinance Mortgage Insurance Rules When Leaving FHA.

3. You sell or pay off the loan. The premium ends with the loan. For a buyer who expects to move in five or six years, the length of the premium track may never matter.

A Short Checklist Before You Commit

• Ask your loan officer to show your LTV on the base loan, excluding the financed upfront premium.
• Ask which value the lender uses, price or appraisal, and what happens if the appraisal is low.
• Find the mortgage insurance lines on your Loan Estimate, then compare them to the Closing Disclosure.
• After closing, find the case number on your documents so you know your cohort.
• Ask your servicer for the scheduled final annual premium payment date. If you are on the 11-year track, check your statements near that date to confirm the premium dropped.

Key Terms Defined

Annual mortgage insurance premium (MIP): The monthly charge, figured as a yearly percentage of your balance, that protects the lender on an FHA loan.

Upfront premium: A one-time charge of 1.75% of the base loan, usually financed into the loan.

Loan-to-value (LTV): The base loan divided by the home’s value. A lower LTV means a bigger down payment.

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

Case number: The number assigned to your FHA loan. Its date decides which duration rules apply to you.

Servicer: The company that collects your payment and schedules when premium billing ends.

What Does the Decision Look Like in Practice?

Start with how long you plan to keep the loan. Under about five years, the lower cash outlay of the minimum down payment often makes sense. Past a decade, the 10% line deserves serious weight. In between, it comes down to your reserves and how much cushion you want after closing.

The 10% line is the single biggest lever in FHA mortgage insurance. Hit it, and you convert a loan-long cost into an 11-year cost. Miss it by a point, and you do not.

If you are buying a home and want to see whether an FHA loan fits your file, Lendmire can help you compare the options and what each one asks of the file. Details on the FHA loan programs Lendmire arranges are on the program page. All figures here are subject to lender guidelines and full file review, and nothing on this page is a commitment to lend.

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. HUD Mortgagee Letter 2013-04 (as hosted by FHFA)

2. HUD Actuarial Review of the FHA Mutual Mortgage Insurance Fund

3. HUD Handbook 4000.1 servicing excerpt (ML 2025-06)

4. HUD Answers: MIP collection for loans with case numbers before June 3, 2013

5. HUD Mortgagee Letter 2023-05