The trade is explicit: easier qualification in exchange for insurance the borrower funds. There are two premiums, and they behave differently.
The upfront mortgage insurance premium is 175 basis points, or 1.75 percent, of the base loan amount, and it may be financed into the loan rather than paid in cash (HUD Handbook 4000.1 Appendix 1.0, as set by Mortgagee Letter 2023-05). Financing it does not enlarge the annual premium. The statute measures that premium against the remaining insured principal balance excluding the portion attributable to the upfront premium (12 USC 1709(c)(2)(B)), which is why HUD's own tables are keyed to the base loan amount rather than to the amount actually borrowed.
The annual mortgage insurance premium is charged monthly, and its rate and duration both turn on the loan-to-value ratio at origination. For a term longer than 15 years, at or below the national conforming loan limit:
Loans above the conforming limit pay more at every tier, and a term of 15 years or less has its own lower and differently shaped schedule.
The duration is set once and never moves. A borrower putting the minimum 3.5 percent down starts at a 96.5 percent loan-to-value ratio, lands in the bottom row, and pays the annual premium for the whole term. Paying the balance down does not shorten it. This is the single largest difference between FHA mortgage insurance and private mortgage insurance on a conventional loan, because the Homeowners Protection Act, which gives conventional borrowers a cancellation request at 80 percent of original value and automatic termination at 78 percent, applies only to private mortgage insurance. Refinancing into a conventional loan is generally the only way out, and it is not guaranteed to be available on acceptable terms when a borrower wants it.
The rates are administrative; the ceilings above them are statutory. For a one- to four-family mortgage insured out of the Mutual Mortgage Insurance Fund, which is what an ordinary FHA purchase loan is, the governing provision is 12 USC 1709(c)(2). It caps the upfront single premium at 3 percent of the original insured principal obligation, or 2.75 percent for a first-time homebuyer who completes approved counseling, and it permits an annual premium of up to 1.5 percent, rising to 1.55 percent where the original principal obligation exceeded 95 percent of appraised value. So the 0.55 percent in the table above sits well below what the statute would allow, and HUD moves it by Mortgagee Letter rather than by legislation. The durations behave differently: the same provision sets maximum collection periods of 11 years and 30 years, so the schedule above is at its statutory ceiling and cannot be lengthened administratively. The 80 and 78 percent conventional thresholds, by contrast, would take an Act of Congress to move at all.
The 3.5 percent is measured against appraised value, and the wording is the point. The statute requires a mortgagor to have paid "an amount equal to not less than 3.5 percent of the appraised value of the property" (12 USC 1709(b)(9)(A)). If the appraisal comes in below the contract price, the required cash is computed on the lower figure while the price gap still has to be funded separately, so the total cash needed rises. A companion provision caps the principal obligation at 100 percent of appraised value (1709(b)(2)(B)).
Money borrowed from a family member counts as the borrower's own cash. Section 1709(b)(9)(B) directs HUD to treat amounts borrowed from a family member as cash or its equivalent, subject to two conditions: any lien securing the repayment must be subordinate to the FHA mortgage, and the two obligations together may not exceed 100 percent of appraised value plus certain closing fees. The mirror rule at (b)(9)(C) is stricter than most buyers expect: the required cash may not come, in whole or in part, from the seller or from anyone else who benefits financially from the transaction, or from a third party they reimburse.
Loan limits are derived rather than chosen. For a one-unit residence the ceiling is the lesser of 115 percent of the area's median house price or 150 percent of the conforming loan limit, with a floor set at the greater of the area's October 21, 1998 limit or 65 percent of the conforming limit (12 USC 1709(b)(2)(A)). Because the conforming limit is reset annually, so are the FHA floor and ceiling, which is why no useful page prints them. HUD publishes a county-by-county lookup.
One requirement that is easy to miss. A first-time homebuyer taking a principal obligation above 97 percent of appraised value must complete a HUD-approved homeownership counseling program, unless HUD waives it (12 USC 1709(b)(2)).
