How it's calculated
FHA loans are insured by HUD's Federal Housing Administration, and you pay for that insurance in two ways:
- Upfront mortgage insurance premium (UFMIP): 1.75% of the base loan amount for all purchase loans. You can add it to the loan or pay it at closing.
- Annual mortgage insurance premium (MIP): a yearly rate that depends on the loan term, the base loan amount and your loan-to-value ratio, paid in twelve monthly installments.HUD
The current annual rates were set by Mortgagee Letter 2023-05 and remain in HUD's handbook as of its August 2026 update.HUD For loans longer than 15 years with a base amount up to $726,200, the rate is 0.50% when you put down at least 5% and 0.55% when you put down less. If you put down 10% or more, annual MIP ends after 11 years; with less than 10% down it lasts for the life of the loan. Loans of 15 years or less pay lower rates.
FHA requires a down payment (minimum required investment) of at least 3.5% for borrowers with credit scores of 580 or more; scores of 500 to 579 are limited to 90% financing.
The formula
- Base loan amount = price − down payment, rounded down to whole dollars.
- LTV = base loan amount ÷ price.
- UFMIP = base loan × 1.75%. If financed, the whole dollars are added to the loan (any amount under $1 is paid at closing): total loan = base loan + UFMIP.
- Annual MIP rate and duration from HUD's table by term, base loan and LTV.
- Monthly MIP for each loan year = (the average of that year's 12 scheduled balances × annual rate) ÷ 12, rounded to cents. This is HUD's published averaging method, so MIP falls slightly every year.HUD
- Monthly payment = principal and interest on the total loan + monthly MIP + property tax ÷ 12 + insurance ÷ 12 + HOA.
Worked example
A $350,000 home with 3.5% down at 6.25% for 30 years has a base loan of $337,750 and an upfront premium of $5,911, for a total loan of $343,660. Its annual MIP rate is 0.55%, which adds $156.67 a month in the first year.
| Line | Monthly |
|---|---|
| Principal & interest | $2,116 |
| FHA annual MIP (0.55%, year 1) | $157 |
| Property tax | $350 |
| Homeowners insurance | $133 |
| Monthly payment | $2,756 |
Putting 10% down instead drops the rate to 0.5% and limits MIP to 11 years, with a monthly payment of $2,590.
Loan limits
FHA limits vary by county. For 2026 the national floor for a one-unit home is $541,287 and the high-cost ceiling is $1,249,125, set at 65% and 150% of the national conforming limit.HUD The calculator flags a base loan above the floor, since it is allowed only in counties with a higher limit; check your county with HUD's limit lookup.
Assumptions and limitations
- Purchase loans only. Streamline refinances, Section 247 (Hawaiian Home Lands) and Section 248 (Indian Lands) loans have different premiums.
- Price is treated as the appraised value. FHA uses the lesser of the two.
- Annual MIP uses HUD's averaging method on the scheduled balance. Your lender's figure can differ by a few cents. Extra payments don't change the MIP schedule.
- Credit score isn't an input. The 3.5% minimum assumes a score of 580 or higher.
- Taxes and insurance stay flat; they usually rise over time.
Compare with a conventional loan in the mortgage calculator, or see how much you can borrow with the home affordability calculator.