The Quick Read: The upfront premium is a one-time mortgage insurance charge of 1.75% of your base loan, and nearly every FHA purchase loan carries it. You either pay it in cash at closing or add it to the loan. You cannot split it. Your credit score and your down payment do not change the percentage, though a bigger down payment shrinks the dollar amount.
Key Takeaways
- The premium is 1.75% of the base loan, not of the purchase price.
- It is all-or-nothing: you finance the whole thing or pay the whole thing in cash.
- Financing it lowers your cash to close but raises your balance, and interest accrues on it.
- Your score does not change this premium. Your down payment changes only how big the base loan is.
- A partial refund credit exists only if you later refinance from one FHA loan into another FHA loan.
What Is the FHA Upfront Premium, and Why Does It Exist?
The upfront premium is a single insurance charge collected when an FHA loan is made. It protects the lender, not you. If you fall behind and the home sells for less than you owe, the insurance covers part of that loss.
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.
That is the trade FHA makes. Lenders accept a buyer with a modest down payment and an imperfect credit history. In return, the borrower pays for insurance. The federal consumer-finance regulator explains that FHA mortgage insurance has an upfront cost and a monthly cost. The monthly part rides inside your payment.
Think of it as an entry fee for a program that lets you buy with a small down payment. Across the wholesale programs Lendmire places files with, the guidelines are consistent here. The premium is 1.75% of the base loan, and it is financed or paid in cash.
It is not private mortgage insurance. PMI belongs to conventional loans. The FHA premium goes to the government insurance fund, and the rules differ.
If you want the full picture of how this loan works, start with Lendmire’s overview of FHA loan programs. The rest of this article stays on one question: how the upfront premium works and what it does to your closing.
Upfront Premium vs. Monthly Premium: Two Different Charges
Buyers mix these up all the time. They are separate charges with separate rules.
| Factor | Upfront premium | Annual (monthly) premium |
|---|---|---|
| When you pay | Once, at closing | Billed monthly in your payment |
| Percentage | 1.75% of base loan | 0.15% to 0.75% of balance |
| What changes it | Nothing you control | Term, loan amount, LTV |
| How long | One time | 11 years or the full term |
LTV, or loan-to-value, is the loan balance as a share of the home’s value. The annual premium is where your down payment shows up. On a thirty-year loan above 90% LTV, the annual premium lasts for the whole term. At or below 90% LTV, it ends after eleven years. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
That split matters for planning. The upfront premium is predictable. The annual premium depends on how your loan is built.
How Is the Upfront Premium Calculated?
The premium is 1.75% of the base loan amount. The base loan is the amount you borrow before any premium is added. It is not the purchase price.
Here is the sequence the lender follows:
1. Set the value. The lender uses the lesser of the purchase price or the appraised value.
2. Subtract your down payment. With 580 or higher as the decision score, the minimum investment is 3.5%. That leaves a maximum base loan at 96.5% of that value.
3. Apply 1.75% to the base loan. The result is your premium.
4. Choose how to pay it. You finance it or bring cash.
5. Check the loan limit. County loan limits apply to the base loan. The financed premium sits on top.
A word on the 96.5% number. It describes the base loan. If you finance the premium, the note you sign is higher than the base. That is normal on these files.
A Worked Example Without Dollar Figures
Picture two first-time buyers purchasing identical homes with identical appraisals.
Buyer A puts down the 3.5% minimum. Her base loan is 96.5% of the value, and the premium is 1.75% of that.
Buyer B brings a noticeably larger down payment. His base loan is smaller, so the same 1.75% lands on a smaller number. His premium is lower in dollars even though the percentage matches.
Same rule, different base. That is the only lever you have. The percentage does not move.
Pay in Cash or Finance It?
The answer depends on how much cash you have at closing, and how long you plan to keep the loan. Most buyers on the minimum down payment finance it. Cash is tight, and the premium is a large line item.
The rule is all-or-nothing. You cannot pay half and finance half.
| Factor | Finance it | Pay cash |
|---|---|---|
| Cash needed at closing | Lower | Higher |
| Loan balance | Higher | Stays at base |
| Interest on the premium | Yes, for the life of the loan | None |
| Best fit | Tight cash, larger down payment goal | Cash to spare, long-term hold |
Financing does not make the cost go away. The premium becomes part of your balance. Interest accrues on it, and you repay it over the term. Mortgage insurance increases the cost of your loan.
A financed premium also does not count as part of your down payment. Your 3.5% has to come from your own funds, an eligible gift, or approved assistance. Gift funds can cover the minimum investment when they come from an allowed source such as a family member, employer, or charitable organization.
Many first-time buyers finance the premium and still plan ahead. They budget for the higher balance in their monthly payment. Ask your loan officer to show the payment with the premium financed and with it paid in cash. Seeing both is the only way to choose well.
Does the Financed Premium Count Against Loan Limits?
County loan limits apply to the base loan, not to the premium added on top. FHA limits are set by county and change every year, so check the current limit for the county where you are buying. A buyer near the ceiling should still ask the lender how the numbers sit.
This detail trips up buyers who assume the premium eats into their borrowing room. On the files we see, it generally does not. Confirm it with your own lender on your own file.
What Does the Premium Do to My Monthly Payment?
A financed premium raises your balance. A higher balance means a higher principal-and-interest payment. The annual premium is then billed on top of that each month.
So the upfront premium touches your payment indirectly. You do not see it as a line item each month, but you feel it in the loan amount. This is also why debt ratios matter. The base pair is 31/43, meaning housing costs of 31% of income and total debts of 43%. Documented compensating factors can stretch that toward 40/50 at the top tier, and an automated finding governs most files. A higher balance from financing the premium feeds into those ratios.
Where Do You See the Premium Before Closing?
The upfront premium appears on the Loan Estimate you receive after applying, and again on the Closing Disclosure before you sign. Look in the mortgage insurance and loan-cost sections. Both forms should show whether it is financed.
Here is a short checklist for reading them:
- Confirm the premium reads as 1.75% of the base loan, not the price.
- Confirm whether it is financed or paid in cash.
- Compare the loan amount on the form to your base loan plus the premium.
- Ask about any change between the first estimate and the final one.
Changes happen. If the appraisal comes in low, or the price shifts, the base loan changes. The premium recalculates with it. If the numbers on your Closing Disclosure surprise you, ask before you sign.
Can You Get the Premium Back?
Usually not. The upfront premium is not refundable if you sell or pay off the loan. There is one narrow exception, and it matters if you might refinance early.
If you refinance from an FHA loan into a new FHA loan within the first few years, a refund credit reduces the premium on the new loan. The credit declines over time. It follows a published schedule by month.
Three points about the credit:
- It reduces the new premium. It is not paid to you in cash.
- It applies only to FHA-to-FHA refinances. Moving into a conventional, VA, or USDA loan does not trigger it.
- HUD’s refinance authorization tool shows the mechanics. It reports a refund factor based on the projected closing date, along with earned and unearned portions.
This is worth knowing as a first-time buyer. Plans change. If you think you may refinance in a couple of years, the refund credit softens the cost of a short stay in your first FHA loan.
Where the General Rule Breaks
The 1.75% figure covers nearly every FHA mortgage. A few narrow cases differ. HUD’s Mortgagee Letter 2023-05 restates the standard rate and lists the exceptions.
Older FHA loans being refinanced. Streamline and simple refinances of FHA loans endorsed on or before a mid-2009 cutoff carry a token upfront premium, a tiny fraction of a percent. Few first-time buyers will hold a loan that old.
Indian Lands (Section 248). These loans do not require an upfront premium.
Hawaiian Home Lands (Section 247). These have their own schedule and no annual premium. Ask a lender if you are buying on those lands.
Refinancing within FHA. The premium applies again on a new FHA loan, softened by the refund credit above. The FHA Streamline refinances an existing FHA loan with no appraisal, a limited credit review, and a net tangible benefit. The upfront premium continues on that structure. A rate-and-term refinance with an appraisal reaches 97.75% on a principal residence occupied for the previous twelve months. A cash-out refinance reaches 80% LTV on a home owned and occupied for 12 months before the case number. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Other FHA variations. For rehab, condo, and manufactured housing structures, no separate upfront rate applies. The standard 1.75% applies unless a listed exception fits. Confirm with your lender.
One more point on timing. The 2023 change to FHA pricing cut only the annual premium. The upfront premium stayed put. Some buyers read old headlines and assume both dropped. Only the monthly piece fell.
Common Myths About the Upfront Premium
“A better credit score lowers it.” It does not. The CFPB says FHA mortgage insurance costs the same regardless of credit score. Your score affects whether you qualify and how the loan is priced, not this premium. The wholesale programs Lendmire places FHA loans with start at a 580 decision score.
“It is the same as PMI.” No. PMI is conventional insurance. FHA’s premium is separate.
“It is based on the purchase price.” It is based on the base loan. Some state FAQ pages get this wrong.
“I can finance part of it.” All or nothing.
“It is refundable when I sell.” Not in general. The only exception is the FHA-to-FHA refinance credit.
“Financing it means I am not paying for it.” You still pay. It sits inside your balance and accrues interest.
“I can negotiate it away.” The percentage is set by program rules, so it is not a lender fee to haggle over. Seller contributions, up to 6% of the price, can help with closing costs. Ask your loan officer how a seller credit would apply on your file.
Key Terms Defined
Upfront mortgage insurance premium (UFMIP): the one-time FHA insurance charge, 1.75% of the base loan, paid at closing or financed.
Base loan amount: the amount borrowed before the upfront premium is added.
Annual mortgage insurance premium (MIP): the monthly FHA insurance charge, set by term, loan amount, and LTV.
LTV (loan-to-value): your loan balance divided by the home’s value, shown as a percentage.
Refund credit: a declining reduction in the new upfront premium when you refinance FHA to FHA in the first few years.
Decision score: the credit score a lender uses to review your file. The programs Lendmire works with begin at 580.
Minimum investment: the 3.5% of price or value you must put into the purchase on a purchase loan at 580 or higher.
A First-Time Buyer’s Cash-to-Close Checklist
Use this list before you commit to a price:
1. Know your down payment source: savings, gift, or approved assistance.
2. Ask for the cash-to-close figure with the premium financed.
3. Ask for the same figure with the premium paid in cash.
4. Check how seller credits can apply.
5. Compare your total monthly cost in both scenarios.
6. Confirm the county loan limit for your target area.
7. Ask whether your plans could lead to an early FHA refinance, and what the refund credit would look like.
Questions to Ask Your Loan Officer
- Is my upfront premium financed or paid in cash on this estimate?
- What is my base loan, and what is the premium on it?
- How does my balance change if I finance the premium?
- What happens to the premium if the appraisal comes in low?
- Is FHA the best fit for my file?
Every parameter here is subject to lender guidelines and a full file review. Nothing here is a commitment to lend.
Frequently Asked Questions
Is the FHA upfront premium the same for everyone?
Yes, within the standard rules. It is 1.75% of the base loan whatever your credit score, down payment, or term. A few narrow exceptions exist, such as Indian Lands loans and older FHA refinances. For a typical first-time purchase, expect the standard figure.
Can I pay part of the premium in cash and finance the rest?
No. The premium is financed in full or paid in cash in full. If you want to lower the financed amount, the way to do it is a larger down payment. That shrinks the base loan, so the premium shrinks with it.
Does financing the premium hurt my chances of qualifying?
It can nudge your numbers. A financed premium raises the balance and the payment, and both feed your debt ratios. The base pair is 31/43, with documented factors reaching 40/50 at the top tier. Most buyers still qualify with the premium financed. Your loan officer can run both versions.
Can I get the upfront premium refunded if I sell?
Not in general. The refund credit applies only if you refinance from FHA into another FHA loan, and it reduces the new premium rather than paying you cash. The credit declines over the first few years. It does not apply if you move into a conventional, VA, or USDA loan.
Did the cut to FHA insurance lower the upfront premium?
No. HUD’s 2023-05 letter cut the annual premium, and the upfront premium stayed at 1.75%. Ask your lender to confirm the current figure on your estimate before you rely on it.
Next Step
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. Bring your questions about the upfront premium, and ask for the cash-to-close picture both ways.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
As a mortgage broker (NMLS# 2371349), Lendmire helps homeowners and home buyers in 16 states with FHA, VA, conventional and jumbo purchase and refinance loans arranged through wholesale lenders. Lendmire is never the lender; program terms are set by the lender and the agency guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. CFPB: What is mortgage insurance and how does it work?
2. HUD Refinance Authorization field descriptions
3. HUD Mortgagee Letter 2023-05
This article is part of Lendmire’s FHA loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: FHA Cash-Out Payment History Rules on an Existing FHA Loan · Can a Homeowner With an FHA Loan Do an FHA Cash-Out in Texas? · Does a Late Payment on Your FHA Loan Block an FHA Cash-Out?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.