How Much the FHA Upfront Premium Adds for a First-Time Buyer

The Quick Read: The FHA upfront premium adds 1.75% of the base loan, the loan amount before the premium is counted. Most buyers finance it, so the final balance ends up above the base loan, and the extra amount accrues interest for as long as the loan lasts. First-time status doesn’t change the figure, and neither does a bigger down payment or a stronger credit score. Paying it in cash is the alternative, and that raises the money needed at closing instead.

This article walks through what the premium is, how to work it out from a price and a down payment, where it shows up on your paperwork, and the few situations where the general rule bends. It also lays out the decision most first-time buyers face: finance it or pay cash. Everything below is written for a buyer purchasing the home they will live in.

What Is the FHA Upfront Premium?

The upfront premium is a one-time mortgage insurance charge on an FHA loan. It protects the FHA insurance fund if a loan defaults, and it is the reason FHA lenders can offer low-down-payment financing to buyers with thinner files.

HUD’s Mortgagee Letter 2023-05, which carries the current text of the mortgage insurance appendix, sets the upfront premium for all mortgages at 175 basis points, or 1.75%, of the base loan amount. The 2023 update changed the annual premium. The upfront rate carried forward untouched. Some older web pages still blend those two changes together, so if you see a claim that the upfront premium was cut, treat it as a mix-up.

Across the wholesale programs Lendmire places FHA files with, the structure is the same every time: an upfront premium of 1.75% of the base loan, plus an annual premium. Those two charges are easy to confuse, so keep them apart:

The annual figure varies by term, loan amount and LTV, subject to lender guidelines and full file review. The upfront figure doesn’t.

How the Premium Is Calculated, Step by Step

The calculation takes three steps, and only the first needs your input.

1. Find the base loan. Subtract your down payment from the purchase price. On a purchase with the program’s maximum financing of 96.5%, the base loan is 96.5% of the price (or of the appraised value, if lower). That corresponds to the 3.5% minimum investment, available from a decision score of 580 or higher on the wholesale programs Lendmire works with.

2. Multiply by 1.75%. The result is the dollar amount of the premium. On a $100,000 base loan it would be 1.75% of that, which is simply 1.75 for every 100 of base loan. Run your own price through that fraction.

3. Decide how to pay it. Add it to the loan, or bring cash to the table.

Think of it in percentages. At the maximum 96.5% financing, the premium adds 1.75% of that base. Work that through and the financed balance lands at roughly 98.2% of the purchase price. That is the whole mechanic: the final loan is a bit more than 98% of the price, even though the base loan is 96.5%.

A few details trip buyers up:

• The premium follows the base loan, not the price. A larger down payment shrinks the base loan, so the dollar premium shrinks with it. Pricing and available terms vary by lender, borrower profile, property type, and full underwriting review.
• Rounding is handled by the lender. Expect the Loan Estimate to show a dollar figure to the cent.
• The base loan is the number the county limit measures against. County loan limits apply and change every year, so confirm the current limit for your county with a loan officer. Never rely on a figure from an old page.

Where the Premium Shows Up on Your Paperwork

You’ll see the premium on the Loan Estimate, the three-page form a lender must send after you apply. The CFPB’s guide to the Loan Estimate and Closing Disclosure says the Loan Estimate is due within three business days after application. The Closing Disclosure follows before closing.

On an FHA loan, the premium appears in the closing-cost section, in the lines for government program charges. That placement confuses some buyers into thinking the lender is charging a fee. It isn’t. The lender collects the premium and remits it to HUD. The borrower never sends money to HUD directly.

A habit worth building: compare the premium line on the Loan Estimate to the same line on the Closing Disclosure. The two should match unless something about the loan changed, such as the base loan amount. If the dollar figure moves and your loan didn’t, ask why.

Finance It or Pay Cash? The Decision in Practice

Most first-time buyers finance the premium, and the reason is practical. Cash is the scarce resource at closing. Financing it keeps the premium out of cash to close. The tradeoff is that a larger balance carries interest for the life of the loan.

One rule matters here. The premium is generally entirely financed or entirely paid in cash. A split isn’t how the program is built, so plan for one or the other. For a deeper look at the cash route, Lendmire’s piece Can a First-Time Buyer Pay the FHA Upfront Premium in Cash? goes through it.

Which one fits depends on your situation. If your savings are thin and the 3.5% minimum investment already stretches you, financing is usually the practical call. If you have cash beyond closing costs and reserves, paying the premium out of pocket avoids interest on it, but it also drains cash you may want after the move. Buyers who plan to refinance within a few years sometimes weigh that too, though the premium isn’t refunded in cash in that case (more on that below).

“Financing it” doesn’t make the premium free. It spreads the cost into the balance, where it accrues interest. That’s a fair trade for many buyers, as long as it’s chosen with eyes open.

The premium also interacts with other money in the deal. Seller or interested-party contributions can reach 6% of the price on these programs, subject to lender guidelines, and how they apply to closing costs is something to confirm with your loan officer before you write an offer.

Does Being a First-Time Buyer Change It?

No. The premium is a flat 1.75% of the base loan whether this is your first home or your fifth. Credit score doesn’t alter it. Down payment size changes the dollar amount only because it changes the base loan.

This is worth stating plainly because stale pages still circulate. Some mention discounts or waivers for first-time buyers or for counseling. Nothing in HUD’s current appendix text supports a first-time-buyer discount on the upfront premium. If a page promises one, check its date and check HUD’s own text.

Being a first-time buyer does matter in other ways. It may open the door to down payment assistance programs in your area, and FHA’s low minimum investment suits buyers building their first savings. Those are access advantages, not premium reductions.

Where the General Rule Bends

The 1.75% rule holds for a typical purchase. A few edge cases change the picture.

Narrow HUD exceptions. HUD’s appendix lists exceptions for certain streamline and simple refinances of FHA loans endorsed on or before a date in 2009, and for Hawaiian Home Lands loans. A typical first-time buyer will never meet either one.

FHA-to-FHA refinances. If you later refinance one FHA loan into another, HUD’s FHA fact sheet says part of the old premium may be applied as a credit toward the new loan’s upfront premium. Three things to know:

• It’s a credit, not a check to you.
• The credit shrinks as time passes, and the older refund schedules that HUD’s Inspector General reviewed no longer apply to current loans. Ask your loan officer how the current window works.
• The FHA Streamline, which refinances an existing FHA loan with no appraisal and a limited credit review, requires a net tangible benefit, and the mortgage insurance premium continues.

No refund in other exits. Per HUD, when an insurance claim is paid, no refund is due the homeowner. Selling the home or refinancing into a non-FHA loan generally forfeits the unearned portion as well. The practical lesson: don’t count on getting the premium back.

Overpayments. If the lender sends HUD too much, HUD refunds the overpayment to the lender, generally about four weeks after endorsement, per HUD’s guidance on refunding a payment. That is a lender-side process and isn’t a borrower strategy.

Other refinance structures. The FHA rate-and-term refinance with an appraisal reaches 97.75% on a principal residence occupied for the previous twelve months, and the FHA cash-out reaches 80% LTV on a home owned and occupied for 12 months before the case number. The upfront premium is part of those loans too, subject to lender guidelines.

Occupancy. FHA purchase financing here is for an owner-occupied principal residence, one to four units. Occupancy is what decides the leverage, so a home you won’t live in is a different conversation.

How the Premium Affects Qualifying

A financed premium raises the loan balance, which raises the principal-and-interest portion of the payment. The annual premium is added to the monthly obligation too. Both feed into your debt ratios.

Across the wholesale programs Lendmire places files with, the base ratio pair is 31/43 (housing to total debt) with no compensating factors. Documented compensating factors, such as reserves or a strong payment history, can reach 40/50 at the top tier, and the automated finding governs most files. The practical effect: the premium takes a little room out of the ratios, and a buyer near the edge may feel it. Where a file sits close to a ratio limit, it can help to look at price, down payment and debt payoff together.

Credit history matters too. HUD’s waiting periods are two years from a chapter 7 discharge and three years from a foreclosure. Those are HUD rules, not a promise from any lender, and every file is subject to lender guidelines and full review.

Common Misconceptions

• “It’s a lender fee.” It’s a HUD-set premium. The lender collects it.
• “A better credit score lowers it.” The upfront rate is flat. The annual premium is what moves with the loan.
• “Financing makes it free.” Interest accrues on the added balance.
• “I’ll get cash back when I refinance.” Any refund is a credit toward a new FHA premium, not cash.
• “The 2023 cut lowered it.” That change hit the annual premium only.
• “The premium lasts the life of the loan.” The upfront premium is one-time. The annual premium is the ongoing one. 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. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.

Key Terms Defined

Base loan amount: The purchase price minus your down payment, before the upfront premium is added.

Upfront premium (UFMIP): A one-time FHA mortgage insurance charge of 1.75% of the base loan.

Annual premium: The ongoing FHA mortgage insurance charge, billed monthly and set by term, loan amount and LTV.

Loan Estimate: The standard form a lender provides after you apply, showing the loan terms and costs.

Closing Disclosure: The final cost statement you receive before closing.

LTV (loan-to-value): The loan balance as a percentage of the home’s price or value.

Putting It Together

Take the buyer who puts down the 3.5% minimum. The base loan is 96.5% of the price. The premium adds 1.75% of that, and financing it pushes the balance to roughly 98.2% of the price. The borrower brings less cash to closing, but pays interest on a slightly larger loan. Run the same price with a larger down payment and the premium shrinks along with the base loan, though the rate stays put.

If your cash is limited, financing is the usual route. If you have room, paying in cash trims the balance. Either way, the number to check is the premium line on your Loan Estimate, and the question to ask is how the financed amount moves your total monthly obligation.

Lendmire’s FHA loan programs page covers the structure in more detail. Lendmire is a mortgage broker, so it arranges these loans through wholesale lenders rather than lending directly, and every figure above is subject to lender guidelines and full file review. Nothing here is a commitment to lend.

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.

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

About Lendmire

Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. HUD Mortgagee Letter 2023-05, Appendix 1.0 text

2. CFPB Guide to the Loan Estimate and Closing Disclosure Forms

3. HUD FHA Homeowners Fact Sheet

4. HUD Office of Inspector General, Oversight of FHA Refunds

5. HUD, Refunding a Payment