The full explanation
It has two parts: an upfront premium (upfront MIP or UFMIP), paid with your closing costs or added to the loan, and an annual premium collected in your monthly payment. Federal law authorizes HUD to charge both and caps them. According to the CFPB, it costs the same no matter your credit score. If you add the upfront premium to the loan, the loan amount and the total cost go up.
An example
Verónica is buying with an FHA loan. On her Loan Estimate she sees the upfront premium in the loan costs and the monthly premium in the projected payments, and decides whether to add the upfront premium to the loan.
With real numbers
Computed with official data for the whole U.S. In your county the numbers may differ.
- Minimum down payment (3.5%)
- $11,645
- Upfront premium (1.75%)
- $5,618
- Annual premium, per month (0.55% a year)
- $147
On a $332,700 home, the typical U.S. value, an FHA loan with the minimum down payment (3.5%, that is $11,645) would be $321,056. On that loan you would pay an upfront premium of $5,618 (1.75%) and an annual premium of about $147 a month (0.55% a year).
Computed with: American Community Survey (ACS) 5-year estimates (2020–2024) · HUD Handbook 4000.1 (Update 18), II.A.2.a.iv — Minimum Required Investment (October 17, 2026) · HUD Mortgagee Letter 2023-05: Reduction of FHA Annual MIP Rates (October 9, 2026) · Conforming loan limits (FHFA) (2026)
You will see it in…
- The Loan Estimate, under “Mortgage Insurance” in the projected payments
- The Closing Disclosure, under loan costs
- Our mortgage and closing cost calculators, with an FHA loan
