What makes an FHA loan different
An FHA loan is a mortgage from a private lender that the Federal Housing Administration insures. Because the government backs the lender against losses, FHA loans accept smaller down payments (3.5%) and lower credit scores (down to 500) than most conventional loans. The price of that backing is mortgage insurance, called MIP, which every FHA borrower pays in two parts:
- Upfront MIP (UFMIP): 1.75% of the base loan, charged once at closing. Most people add it to the loan instead of paying cash.
- Annual MIP: a yearly percentage of the loan balance, split into 12 monthly charges and added to your payment.
The calculator above handles both, plus property tax, home insurance and HOA fees, so the headline number is close to what your lender will actually collect each month.
How the FHA payment is calculated
UFMIP = base loan × 1.75%
Loan = base loan + UFMIP (when financed)
P&I = Loan × r ÷ (1 − (1 + r)^−n), r = yearly rate ÷ 12, n = months
Monthly MIP = annual MIP rate × average balance for the year ÷ 12
HUD recalculates annual MIP once a year using the average scheduled balance for that year. That is the method used here, so your MIP drops by a few dollars each year as the loan shrinks. Some quick calculators keep MIP flat at the starting loan amount, which slightly overstates it.
Annual MIP rates (HUD Mortgagee Letter 2023-05)
These rates apply to FHA loans endorsed on or after March 20, 2023. LTV is the base loan divided by the home’s value.
Loans longer than 15 years
| Base loan amount | LTV | Annual MIP | How long |
|---|---|---|---|
| $726,200 or less | 90% or less | 0.50% | 11 years |
| $726,200 or less | 90.01% to 95% | 0.50% | Life of loan |
| $726,200 or less | Over 95% | 0.55% | Life of loan |
| Over $726,200 | 90% or less | 0.70% | 11 years |
| Over $726,200 | 90.01% to 95% | 0.70% | Life of loan |
| Over $726,200 | Over 95% | 0.75% | Life of loan |
Loans of 15 years or less
| Base loan amount | LTV | Annual MIP | How long |
|---|---|---|---|
| $726,200 or less | 90% or less | 0.15% | 11 years |
| $726,200 or less | Over 90% | 0.40% | Life of loan |
| Over $726,200 | 78% or less | 0.15% | 11 years |
| Over $726,200 | 78.01% to 90% | 0.40% | 11 years |
| Over $726,200 | Over 90% | 0.65% | Life of loan |
The key line for most buyers: with 3.5% down on a 30-year loan (96.5% LTV), you pay 0.55% a year for as long as you keep the loan. Put down 10% or more and MIP stops after 11 years.
Worked example 1: 3.5% down on a $350,000 home
You buy a $350,000 home with the minimum 3.5% down ($12,250) at 6.25% for 30 years. Property tax is 1.1% a year and insurance is $1,500 a year.
- Base loan = $337,750, so LTV = 96.5% and the annual MIP rate is 0.55%
- UFMIP = $337,750 × 1.75% = $5,910.63, added to the loan for a total of $343,660.63
- Principal and interest = $2,115.98 a month
- Year 1 MIP = 0.55% × the average balance ÷ 12 = $156.67 a month (it falls to $154.78 in year 2 and $134.45 by year 10)
- Tax $320.83 + insurance $125 brings the first payment to $2,718.49
Over 30 years you would pay $36,792.03 of annual MIP on top of the $5,910.63 upfront premium, and $418,091.30 of interest. That is why many FHA borrowers refinance once they reach about 20% equity.
Worked example 2: putting 10% down
Same idea on a $300,000 home with 10% down ($30,000) at 6%:
- Base loan $270,000, UFMIP $4,725, loan $274,725
- Principal and interest $1,647.12
- LTV is exactly 90%, so annual MIP is 0.50% and stops after 11 years (132 payments)
- Year 1 MIP is $113.83 a month; total annual MIP over the 11 years is $13,871.82
With 3.5% down on the same house, the loan would be $294,566.25, MIP would be 0.55% for the full 30 years, and total annual MIP would be $31,278.52. Moving from 3.5% to 10% down cuts lifetime MIP by more than half.
Worked example 3: a 15-year FHA loan
A 15-year FHA loan on the $300,000 home with 10% down at 5.75% has a payment of $2,281.34, but annual MIP is only 0.15%, or $33.67 a month in year one. It lasts 11 years and totals $3,235.53. Total interest is $135,916.94, against well over $300,000 on a 30-year loan.
FHA vs conventional: which costs less?
Turn on Compare with a conventional loan above. For example 1, a conventional loan with 5% down at 6.5% and PMI at 0.7% a year costs $2,741.42 in the first month, about $23 more than the FHA loan. But conventional PMI ends automatically when the balance is scheduled to reach 78% of the home’s value (after 135 payments here), while FHA MIP never ends at 3.5% down. Over the full 30 years, the conventional loan costs about $10,500 less.
General patterns:
| Your situation | Usually cheaper |
|---|---|
| Credit score under about 640 | FHA (PMI gets very expensive) |
| Credit score 740+ and 5% or more down | Conventional |
| You plan to sell or refinance within a few years | Compare first-year cost and closing costs |
| Debt-to-income ratio above 45% | FHA, which allows higher ratios |
FHA loan limits
FHA will only insure loans up to a county limit. For 2026, the one-unit limit runs from $541,287 in lower-cost areas to $1,249,125 in the most expensive ones. The calculator warns you when your base loan is above the floor, so you know to check your county on HUD’s lookup tool.
FHA requirements at a glance
| Requirement | FHA rule |
|---|---|
| Minimum down payment | 3.5% with a 580+ score; 10% with 500–579 |
| Upfront MIP | 1.75% of the base loan |
| Annual MIP | 0.15% to 0.75% (see tables) |
| Occupancy | Must be your primary home |
| Debt-to-income | Often up to 43%, higher with strong compensating factors |
| Property | Must meet FHA appraisal standards |
Tips
- Shop rates and fees, not just MIP. MIP is set by HUD and is the same at every lender. The interest rate, points and lender fees are not.
- Check your DTI before you shop. FHA lenders look closely at your debt-to-income ratio. The debt-to-income ratio calculator shows yours in a minute.
- Gifts can cover the down payment. FHA allows gifts from family and some other sources, with a signed gift letter.
- Veterans should price a VA loan too. VA loans need no down payment and no monthly mortgage insurance. Run the same home through the VA loan calculator.
- Know your budget first. The house affordability calculator works backwards from your income, with an FHA 31/43 preset.
Common mistakes
- Forgetting the upfront premium. Financing UFMIP makes the loan 1.75% bigger than the base loan, and you pay interest on it for the whole term.
- Assuming MIP disappears at 20% equity. That rule is for conventional PMI. FHA MIP with under 10% down stays until you refinance or sell.
- Using the conventional PMI rate. FHA insurance pricing does not depend on your credit score, so a conventional PMI quote is not a stand-in.
- Ignoring escrow. Taxes and insurance can add hundreds a month. Use the mortgage calculator for a conventional loan with the same inputs.
The figures here follow HUD’s published rate tables and are estimates. Your lender’s Loan Estimate is the final word on your rate, fees and MIP.