The Quick Read: The annual premium is a yearly percentage of your loan balance, split into 12 and added to each monthly payment. At 3.5% down you land in the top loan-to-value tier, so on a 30-year loan the premium runs for the full term. The dollar amount depends on the size of the loan, not on your credit score. The formula is loan balance times the annual percentage, divided by 12. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Key Takeaways
- The premium scales with the loan. A bigger base loan means a bigger monthly add-on.
- Minimum down puts the file in the highest LTV tier on a 30-year term.
- The monthly figure is not flat. It steps down slightly each year as the balance falls.
- The upfront premium is a separate charge. It can be financed, and it is not part of the base the annual premium is figured on.
- Putting more down changes the tier and how long the premium lasts. It does not remove it.
What Is Annual MIP, and Why Is It in the Payment?
Annual MIP is the recurring half of FHA mortgage insurance. The other half is the upfront premium, a one-time charge of 1.75% of the base loan that most borrowers finance. The annual half is called “annual” because it is priced as a yearly percentage. You never get a yearly bill. It is collected in 12 monthly pieces, bundled with principal, interest, taxes and homeowners insurance.
FHA payment estimate
Starting assumptions reflect an example price and the FHA minimum investment. Replace them with your own figures.
Editable benchmark: 7.32% as of October 22, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not an FHA loan quote.
Illustrative starting assumptions: a $350,000 price, the FHA minimum investment as the down payment, a thirty-year term at the current Freddie Mac benchmark, and property taxes and insurance estimated at typical national rates. Every field is editable.
Illustrative estimate only — not a Loan Estimate, approval, quote, or commitment to lend. The rate field carries the weekly Freddie Mac thirty-year conventional benchmark, a market reference and not an FHA loan quote; your rate is set by the lender at lock. FHA mortgage insurance follows HUD’s published schedule for the term, leverage and loan size entered; taxes, insurance and dues are editable estimates; closing costs are not included; county loan limits are not checked here. Licensed in sixteen states for consumer mortgages. Lendmire is not affiliated with or acting on behalf of FHA, HUD, or the federal government.
Across the wholesale programs Lendmire places FHA files with, the annual percentage runs between 0.15% and 0.75% of the balance. Where a file lands depends on three things: loan term, loan amount and LTV. Those are program facts, not a price quote. Your Loan Estimate shows the actual figure for your file.
Minimum down on these programs means a 3.5% investment at a decision score of 580 or higher. The base loan tops out at 96.5% of the lesser of price or appraised value. It is owner-occupied financing for a principal residence, one to four units. You can see how the full program fits together on Lendmire’s FHA loan programs page.
What Sets the Rate at Minimum Down?
At minimum down, three inputs pick your annual percentage. Term is the first. Fifteen years or less sits in a different bracket than longer terms. Loan amount is the second. The threshold ties to the national conforming loan limit, so it moves when that limit moves. LTV is the third. A 96.5% base loan is above 95%, which is the highest tier.
| Input | What it does | At minimum down |
|---|---|---|
| Loan term | Shorter terms sit in a lower bracket | 30-year term is the common case |
| Base loan amount | Loans above the conforming-limit threshold sit in a higher bracket | Compare your loan to the current national conforming limit |
| Original LTV | Higher LTV means a higher tier | 96.5% is the top tier |
HUD Mortgagee Letter 2023-05 lays out this tier structure and ties the loan-amount threshold to the national conforming limit. That letter also lowered annual premiums for most new loans. NCSHA’s summary of the letter confirms the cut reached the common 30-year, high-LTV case. Loans endorsed before that change kept their older percentages.
Credit score is not on the list. The Consumer Financial Protection Bureau says FHA mortgage insurance costs the same no matter your credit score. The only wrinkle is a slight increase for down payments under 5%. Your score still affects your interest cost and whether you clear the 580 floor. It does not move the premium.
How the Math Works, Step by Step
Here is the sequence a lender and servicer follow. Each step stays in percentages and plain words.
1. Find the base loan. Take the lesser of price or appraised value and apply the LTV. At minimum down that is up to 96.5%.
2. Leave out the financed upfront premium. HUD’s calculation page divides out the financed upfront amount, so the annual premium is figured on the base loan, not the loan plus the 1.75%.
3. Pick the tier. Term, loan amount and LTV give the annual percentage.
4. Apply it to the average balance. HUD figures the premium on the average outstanding balance for each amortization year, using the original amortization schedule.
5. Divide by 12. That is the monthly MIP line.
6. Add it to the housing payment. It joins principal, interest, taxes and homeowners insurance.
HUD Handbook 4000.1 says the servicer remits one-twelfth of the annual premium each month, in line with the original amortization schedule. That is why the premium follows the schedule and not your actual balance if you prepay.
A quick shortcut: the monthly add-on is roughly the base loan times the annual percentage, then divided by 12. Your Loan Estimate does this work for you. Use the shortcut only to sanity-check the number.
Why a Lender’s Number May Not Match Quick Math
Three things cause the gap. First, many online estimates apply the percentage to the full starting balance. HUD uses the average balance for the amortization year, which is lower. Second, some estimates include the financed upfront premium in the base. HUD’s method does not. Third, tier and threshold details change with the conforming limit, so a rule of thumb can be a tier off.
If your Loan Estimate shows a different monthly MIP than your math, check the loan amount, the term and which tier it used before you assume something is wrong. Ask the loan officer which base and tier were applied.
Does the Premium Shrink Over Time?
Yes, slightly. The premium is recomputed each amortization year on a lower average balance, so the monthly figure steps down. The drop is gradual. Early in a 30-year loan the balance barely moves, so the premium barely moves.
This runs against a common assumption. The premium is not a flat dollar amount for the life of the loan. It is also not a rate that falls the day you build equity. The percentage stays put. The balance it applies to gets smaller.
Where It Sits in the Full Payment
At minimum down, the payment stack has five parts: principal, interest, property taxes, homeowners insurance and annual MIP. Lenders count the whole stack as the housing payment. On the wholesale programs Lendmire works with, the base ratio pair is 31/43 (housing over total debt) with no compensating factors. Documented compensating factors can stretch that to 40/50 at the top tier.
Because MIP is inside the housing payment, a lower annual percentage helps the housing ratio directly. A borrower near the edge of 31 percent will feel a tier change.
On your paperwork, the monthly premium appears in the Projected Payments section on page 1 of the Loan Estimate. The upfront premium appears in section B on page 2, per the CFPB’s form walk-through. That page is written about private mortgage insurance, but the form locations are the same.
Minimum Down vs. a Bit More Down
Picture a buyer choosing between 3.5% down and 10% down on the same home. The 3.5% buyer has a 96.5% base loan. The 10% buyer has a 90% base loan. The second buyer has a smaller loan and lands in a lower LTV tier. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
| Factor | 3.5% down | 10% down |
|---|---|---|
| Base loan LTV | 96.5% | 90% |
| LTV tier | Highest | Lower |
| Premium on 30-year loan | Lasts the full term | Ends after 11 years |
| Monthly MIP | Larger balance, higher tier | Smaller balance, lower tier |
The duration difference is the part most buyers miss. On a thirty-year loan above 90% LTV, the annual premium lasts for the term. At or below 90% LTV, it ends after eleven years. These are the wholesale program terms, so confirm them against your own file. Down payment is also a cash decision. More down cuts the premium but ties up cash you may want for reserves or repairs. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
How Long You Pay, and How It Ends
At minimum down on a 30-year loan, you pay for the term. Equity does not trigger an automatic cancellation. The practical exit is a refinance into a loan without mortgage insurance, which depends on your equity and credit at that point. An FHA Streamline refinances an existing FHA loan with no appraisal and a limited credit review, but the premium continues. Lendmire has a piece How Much the Annual MIP Adds to an FHA Cash-Out Payment Over Time if you want the longer-term view.
Loans with older case numbers follow older cancellation rules. HUD’s Handbook has a separate standard for those, and it does not use new appraisals. Some programs carry different treatment too. For example, a 2023 HUD mortgagee letter excludes Section 247 loans, which have no annual MIP, and certain older streamline refinances. Those are narrow cases and rarely apply to a standard purchase.
Key Terms Defined
Annual MIP: the yearly mortgage insurance percentage on an FHA loan, paid in 12 monthly installments.
Upfront MIP: a one-time premium of 1.75% of the base loan, paid at closing or financed into the loan.
Base loan amount: the loan before any financed upfront premium is added.
LTV (loan-to-value): the loan as a percentage of the lesser of price or appraised value.
Amortization schedule: the planned balance of the loan month by month. HUD uses the original one to figure the premium.
What Buyers Get Wrong About MIP
“MIP is the same as PMI.” It is not. FHA premiums go to the FHA, not a private insurer, and the cancellation rules differ.
“A better credit score lowers my MIP.” It does not. Score affects the interest cost and the 580 floor, not the premium.
“A 20% down payment avoids it.” The CFPB says mortgage insurance is required on all FHA loans. If a buyer has 20% down, comparing a conventional loan is a fair step. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
“MIP is a one-time fee.” Only the upfront half is. The annual half recurs.
“The payment is fixed for 30 years.” The MIP line steps down slowly, and taxes and homeowners insurance can move the total.
A Quote-Checking List
When the Loan Estimate arrives, check these items:
- The base loan matches your price, appraised value and down payment.
- The upfront premium is shown as financed or paid, and the loan amount reflects it.
- The monthly MIP line sits in Projected Payments.
- The term matches what you asked for.
- The loan amount sits below the national conforming-limit threshold for the tier shown.
The CFPB also advises comparing quotes, since total cost depends on the lender, down payment and market. The tradeoff is real. Mortgage insurance lowers the lender’s risk, so more borrowers qualify. It also raises the cost of the loan.
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. Program figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
Frequently Asked Questions
How is the monthly MIP figure calculated?
Multiply the base loan by the annual percentage, then divide by 12. HUD applies the percentage to the average balance for each amortization year, so your lender’s number can be a little lower than a starting-balance estimate. Your Loan Estimate shows the exact figure for your file.
Does a higher credit score lower the annual premium?
No. FHA mortgage insurance costs the same regardless of score. Down payments under 5% carry a slight increase. Score still matters for the 580 minimum and for your interest cost.
Can I cancel annual MIP when I reach 20% equity?
Not on a 30-year loan with minimum down. Above 90% LTV the premium lasts for the term. The usual way out is refinancing once your equity and credit support it. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Does financing the upfront premium raise the annual premium?
Not directly. HUD’s method calculates the annual premium on the base loan, without the financed upfront amount. Financing the upfront premium raises your loan balance, so principal and interest go up.
Why does my monthly MIP drop a little each year?
The premium follows the original amortization schedule. As the scheduled balance falls, the average balance for the next year is lower. The percentage does not change.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. HUD Mortgagee Letter 2023-05
2. NCSHA’s summary of the letter
3. CFPB: What is mortgage insurance and how does it work
4. HUD: Monthly MIP Calculation
5. HUD Handbook 4000.1 excerpt (Mortgagee Letter 2025-06)
6. CFPB: Where premiums appear on the Loan Estimate and Closing Disclosure
This article is part of Lendmire’s FHA loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How Much FHA Annual Premium Adds to a 2-4 Unit at Minimum Down · How Much a Streamline on Your Existing FHA Loan Lowers the Payment · How Much an FHA Streamline Lowers a First-Time Buyer’s Payment
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.