FHA Loan Guide: Down Payment Rules, 1.75% UFMIP & Monthly MIP Math
Complete home buyer guide to FHA loans: 3.5% down payment credit score tiers, Upfront Mortgage Insurance Premium (UFMIP), annual MIP tiers, and refinancing to conventional.
An FHA loan is a government-backed mortgage insured by the Federal Housing Administration, allowing qualified borrowers to buy a home with a 3.5% down payment and credit scores as low as 580. In exchange for low down payment barriers, FHA borrowers must pay an Upfront Mortgage Insurance Premium (UFMIP) equal to 1.75% of the base loan amount, plus an annual Monthly Mortgage Insurance Premium (0.50% to 0.55%) that typically lasts for the entire 30-year term.
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1. FHA Two-Tier Insurance Structure FHA insurance protects mortgage lenders against foreclosure loss through two sequential fees: 1. **Upfront MIP**: Exactly 1.75% of the base loan amount, almost always added to the principal balance. 2. **Annual MIP**: Divided by 12 and added to every monthly mortgage check: $$\mathbf{\text{Monthly MIP}} = \frac{\text{Base Loan Balance} \times 0.55\%}{12}$$
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