On a $400,000 home with 3.5% down, FHA mortgage insurance adds $6,755 at closing and $177/month to your payment. Over 30 years, that's roughly $70,000 in total insurance costs. Conventional PMI on the same purchase runs about $190/month with no upfront fee, and it drops off once you reach 20% equity. FHA mortgage insurance, for most borrowers, never drops off. That difference is the single biggest cost distinction between FHA and conventional financing, and most buyers don't fully understand it until they're already in the loan.
Two Premiums, Not One
FHA charges mortgage insurance in two pieces. The upfront mortgage insurance premium (UFMIP) is 1.75% of the loan amount, due at closing. Nearly everyone finances it into the loan rather than paying cash. On a $386,000 base loan, that's $6,755 added to the balance, bringing the total to $392,755. You pay interest on that amount for the life of the loan.
The annual mortgage insurance premium (MIP) is the monthly cost. The rate depends on your loan term, LTV, and loan size.
| Loan Term | Down Payment | Loan Size | Annual MIP Rate |
|---|---|---|---|
| 30-year | Less than 5% | At or below $726,200 | 0.55% |
| 30-year | 5% or more | At or below $726,200 | 0.50% |
| 30-year | Less than 5% | Above $726,200 | 0.75% |
| 15-year | 10% or more | At or below $726,200 | 0.15% |
| 15-year | Less than 10% | At or below $726,200 | 0.40% |
Most FHA borrowers end up in the 0.55% tier because most put down the minimum 3.5%. On a $386,000 loan, that's $2,123/year or $177/month added to the mortgage payment.
The Life-of-Loan Problem
This is where FHA mortgage insurance diverges sharply from conventional PMI. If your down payment is less than 10%, MIP stays for the entire 30-year loan term. There is no cancellation based on equity, no request process, no automatic removal at 78% LTV. The only exit is refinancing into a different loan type.