FHA Mortgage Insurance Premiums
FHA loans offer a level of leeway in regards to qualifying for a mortgage that conventional loans do not. That level of leeway comes with a price. As a direct lender, we are willing to take on the additional risks associated with lower down payments, lower credit scores, and higher debt-to-income ratios because FHA insures the loan. FHA insurance covers the lender's loss if a homeowner defaults
There are two insurance premiums collected on FHA loans - both are paid by you, the borrower.
FHA Upfront Mortgage Insurance Premium (FHA UFMIP)
The first premium collected is charged at loan inception. It is 1.75% of the FHA base loan amount. The premium is then added to your base loan amount, resulting in the FHA total loan amount. You do NOT have to pay this out of pocket.
$100,000 purchase price - 3.5% down payment ($3,500) = $96,500 FHA base loan amount
$96,500 FHA base loan amount x 1.75% = $1,689 FHA UFMIP
$96,500 + $1,689 = FHA total loan amount of $98,189
FHA Monthly Mortgage Insurance (MIP or PMI)
The FHA premium that most impacts the borrower is FHA monthly mortgage insurance. The monthly payment to FHA is actually an annual fee paid monthly. It breaks down like this (using the same example as above).
Updated January 26, 2015
FHA base loan amount $96,500 x applicable upfront fee (chart below) 0.85% = $820.25 annually
$820.25 / 12 = $68.35 FHA monthly mortgage insurance
This amount is added to your principal, interest, taxes & insurance payment.