Quick comparison
| Typical minimum down payment | 3.5% (580+ FICO) |
|---|---|
| Monthly mortgage insurance | Annual MIP (often ~0.55%) |
| Upfront insurance | UFMIP ~1.75% (often financed) |
| Best fit | Lower savings or credit flexibility |
| MIP removal | Usually refinance or 10%+ down rules |
How FHA mortgage insurance works
FHA loans require two kinds of mortgage insurance: an upfront premium (typically 1.75% of the base loan amount, often financed into the loan) and an annual premium (commonly around 0.55% for many purchase scenarios) paid monthly through escrow. Unlike conventional PMI, FHA annual MIP usually stays for the life of the loan when you put down less than 10%. That longevity is why many borrowers treat FHA as a bridge into homeownership and plan a later refinance into a conventional loan once equity and credit support better pricing.
Who FHA loans are best for
FHA loans are popular with first-time buyers and borrowers with limited savings or credit scores that would price poorly on conventional guidelines, because they allow a 3.5% down payment and more flexible qualification in many cases. They are not automatically cheaper every month — MIP can make the payment higher than a strong-credit conventional loan with modest PMI. Use this calculator to compare the lower cash-to-close of FHA against the long-term cost of mortgage insurance versus a conventional alternative at the same purchase price.
How this FHA calculator models MIP
Enter the purchase price, down payment, rate, and term, then set upfront and annual MIP percentages. Toggle whether upfront MIP is financed: when it is, the loan balance grows by UFMIP and principal & interest rises accordingly, while monthly annual MIP is still calculated on the base loan (price minus down payment). That matches how most FHA borrowers close. Rates shown are illustrative defaults — your Loan Estimate may differ with credit, LTV, and current HUD MIP tables.
FHA vs conventional: decide with a timeline
If you will likely stay five or more years and can reach 20% equity, model both an FHA payment today and a future conventional refinance. If you need the lowest possible cash to close and your conventional pricing is expensive, FHA may win short-term even with MIP. Always compare Loan Estimates with the same purchase price, prepaid items, and discount-point assumptions so you are not mixing apples and oranges.
Checklist before you apply
- Confirm the property meets FHA appraisal and safety standards.
- Budget for both upfront MIP and the monthly annual MIP.
- Compare a conventional 3–5% down quote with PMI vs. FHA total cost over 5–7 years.
- Ask when you could refinance to conventional once you have ~20% equity.
- Use gift funds documentation rules if family is helping with the down payment.
For the formulas behind every estimate, see how we calculate. Worked example: FHA vs conventional.