There are two premiums, and they behave differently
An FHA loan carries an upfront premium paid once, and an annual premium collected monthly for years. People are usually quoted the second and surprised by the first, or shown the first and never told how long the second lasts.
The upfront premium
1.75 percent of the base loan amount.1,2 On a $300,000 base loan that is $5,250, and it is financed on all but a handful of files rather than brought to closing.
It goes on top of the loan, not inside it. HUD defines the base loan amount as the mortgage amount “prior to the addition of any financed Upfront Mortgage Insurance Premium,” and loan-to-value as the base loan amount divided by the adjusted value.3 So a $300,000 base loan closes at $305,250, and the loan-to-value is still measured against the $300,000. The premium never consumes any of the financing you were entitled to.
That is a real cost either way — financed, you repay it with interest for as long as you keep the loan. But it does not reduce what you can borrow.
An FHA cash-out refinance is capped at 80 percent of value.4 That 80 percent is the base loan amount, so the upfront premium does not come out of your proceeds.3 On a $400,000 home: $320,000 of base loan, and the $5,600 premium financed above it — not $5,600 taken off the cash you walk away with.
If you have been shown a cash-out figure with the premium subtracted from your proceeds, the figure is wrong, and it is wrong in the direction that costs you money. Ask to see the base loan amount and the total mortgage amount as two separate lines.
The annual premium
Collected monthly, as a percentage of the loan. These rates have been in effect for case numbers endorsed on or after March 20, 2023.2 The threshold in the first column is the national conforming loan limit, which is $832,750 for 2026.2,5
| Base loan amount | Loan-to-value | Annual MIP | How long |
|---|---|---|---|
| At or below the conforming limit | 90% or less | 0.50% | 11 years |
| At or below the conforming limit | Over 90% to 95% | 0.50% | The whole term |
| At or below the conforming limit | Over 95% | 0.55% | The whole term |
| Above the conforming limit | 90% or less | 0.70% | 11 years |
| Above the conforming limit | Over 90% to 95% | 0.70% | The whole term |
| Above the conforming limit | Over 95% | 0.75% | The whole term |
On a 15-year loan the rates are lower: 0.15 percent at 90 percent loan-to-value or below, and 0.40 percent above it.2
Not the rate — the duration. At 90 percent loan-to-value or below the premium stops after 11 years. Above 90 percent it runs for the whole term of the loan.2
Ten percent down puts you at exactly 90.00 percent. Nine and a half percent does not. On a $300,000 purchase that is a difference of $1,500 at the closing table, and roughly nineteen further years of premium on a 30-year loan.
Why an FHA APR sits so far above its note rate
Because the APR has to include both premiums. A rate sheet showing an FHA note rate with an APR half a point higher is not a trick — it is the upfront premium and the monthly premium being disclosed, which is what the APR is for. Compare FHA APRs to FHA APRs and conventional to conventional; comparing across the two tells you very little.
Getting out of it
Two ways. If your loan is in an 11-year row, reaching that mark ends it. If it is in a whole-term row, the premium does not fall away as you build equity the way conventional mortgage insurance does — the exit is refinancing into a conventional loan once you have the equity and the score for it. That is a real strategy and a common one, and it is worth pricing before you assume an FHA loan is a thirty-year commitment to the premium.
Sources
These references support the factual explanations above. Where this page states a preference rather than a fact, it says so — those are our editorial judgement, not a claim that any one channel always costs less.
Next
FHA credit scores and down paymentThree tiers, set by HUD. The fourth number you will be quoted is not HUD's.FHA or conventional?Neither one always wins. The mortgage insurance rules decide most of it.Priced against your actual file
FHA limits are set county by county, and what the mortgage insurance costs depends on where your loan-to-value lands. Send us the basics and we’ll price it properly — no credit pull, and it commits you to nothing.