FHA loans require an Up Front Mortgage Insurance Premium (UFMIP) and also may require an annual Mortgage Insurance Premium. This Mortgage Insurance makes it easier for home owners to secure low-interest home loans with lenders with lower down payments than are generally reqiured. The Mortgage Insurance is collected by HUD who then insures the loan. This insurance will protect the lender agianst any default on the loan by the borrower.

FHA's Up Front Mortgage Insurance Premium (UFMIP) is a one-time payment collected at closing. The UFMIP may be paid in cash by the borrower, seller, or lender. A borrower may also finance the UFMIP in to the mortgage, which will increase the loan amount. UFMIP was decreased to 1% of the FHA mortgage loan amount. For example the UFMIP for a $100,000 home loan is $1,000 ($100,000x .01=$1,000).

Mortgage Insurance Premiums (MIP) may be required by the lender if your down payment is less than 20% of the value of the home. As a borrower you must pay MIP each month on top of your mortgage payment. However, after you have acquired 20% equity in your home the MIP will be dropped. MIP will be terminated for mortgages with a term more than 15 years, provided the MIP has been paid for at least  5 years and has a Loan to Value (LTV) less than or equal to 78%. Mortgages with a term of 15 years and less serviced with a LTV ratio of 89.99% or less will not be chared that monthly MIP. In October of 2010 MIP was set to .5% of the loan amount.