How does mortgage insurance work on FHA loans?

FHA loans require two types of mortgage insurance. The first is an upfront mortgage insurance premium (UFMIP) of 1.75% of the loan amount, paid at closing or rolled into the loan. The second is an annual mortgage insurance premium (MIP) ranging from 0.15% to 0.75% of the loan balance, paid monthly. For most FHA loans with less than 10% down, MIP is required for the entire loan term — unlike conventional PMI, it does not automatically cancel when you reach 20% equity. The only way to eliminate FHA MIP is to refinance into a conventional loan once you have 20% equity and meet conventional loan requirements.