Mortgage Insurance Premium (MIP) is required on every FHA loan, regardless of down payment size. There are two parts: an upfront premium paid at closing (almost always financed into the loan rather than paid in cash), and an annual premium paid monthly as part of your mortgage payment.
MIP exists because FHA loans allow lower credit scores and smaller down payments than conventional financing — the insurance is what makes that flexibility possible for lenders to offer.
How it works
The upfront MIP is calculated as a percentage of your loan amount and is added to your loan balance at closing in almost all cases, so you rarely have to pay it out of pocket. The annual MIP is spread across your monthly payments for as long as it applies.
Unlike conventional PMI, MIP usually lasts for the entire life of the loan if your down payment was under 10%. The main way to eliminate it is refinancing into a conventional loan once you've built enough equity — often once you reach roughly 20% equity, though the exact target depends on rates and closing costs at the time.
If you put down 10% or more on an FHA loan, annual MIP is scheduled to drop off automatically after 11 years rather than lasting the full loan term.
When it matters to you
MIP matters when you're weighing FHA against conventional financing — FHA's lower barrier to entry comes with mortgage insurance that's harder to shed than PMI.
It matters again a few years after closing, once you've built meaningful equity — that's typically the point where refinancing out of MIP starts to pencil out against the cost of a new loan.
Common mistakes
- Assuming MIP will disappear the same way PMI does at 78-80% LTV — for most FHA loans it doesn't, and staying on an FHA loan indefinitely means paying MIP indefinitely.
- Not revisiting a refinance to conventional once equity has built up, leaving money on the table in ongoing MIP payments.
- Forgetting that the upfront MIP is usually financed into the loan, which slightly increases the loan balance and the interest charged on it.
- Comparing an FHA MIP payment to a conventional PMI payment without accounting for how much longer MIP typically lasts.
FAQs
Does MIP ever go away on an FHA loan?
If your down payment was 10% or more, annual MIP is scheduled to end after 11 years. If your down payment was under 10%, MIP typically lasts for the life of the loan unless you refinance out of it.
How do I get rid of MIP?
The most common path is refinancing into a conventional loan once you've built enough equity to avoid PMI, effectively trading FHA's MIP for no mortgage insurance at all.
Is upfront MIP paid in cash at closing?
Almost always no — it's typically rolled into the loan balance, so you finance it rather than writing an extra check at the closing table.