FHA Loans and PMI in Texas: What You’ll Pay

FHA Mortgage Insurance: Not PMI, But Similar Purpose

Technically, FHA loans don’t have “PMI” — private mortgage insurance. They have MIP — mortgage insurance premium. The distinction is functional: PMI is private insurance purchased by the lender on the borrower’s behalf, paid to a private MI company (Genworth, MGIC, Radian, Essent). MIP is government insurance paid to the Federal Housing Administration’s Mutual Mortgage Insurance Fund (MMIF). Both exist to protect the lender against default losses when the borrower has less than 20% equity. Both add monthly cost to the borrower’s payment. The practical difference for Texas homebuyers is primarily in the cancellation rules — which are where FHA and conventional insurance structures diverge significantly.

FHA MIP: The Complete 2025 Structure

Upfront MIP (UFMIP): 1.75% of the base loan amount. Charged at closing, almost universally financed into the loan balance. On a $300,000 FHA loan: $5,250 UFMIP added to the balance. Paid directly to the FHA MMIF. Partial refund on a declining schedule if you refinance into another FHA loan within 3 years of closing: 80% in months 1–12, 60% in months 13–24, 40% in months 25–36. Zero refund if you refinance into conventional.

Annual MIP: 0.55% of remaining loan balance for 30-year loans with LTV above 90%. This is the most common structure — a 3.5% down payment buyer on a 30-year loan. Annual MIP at 0.55% on a $305,250 financed balance: $1,679/year = $139.92/month in year one, declining slightly each year as balance decreases. For 30-year loans with less than 10% down originated after June 3, 2013: MIP continues for the life of the loan. It does NOT automatically cancel at 78% LTV the way conventional PMI does under the Homeowners Protection Act.

Annual MIP for 10%+ down (30-year term): 0.50%, canceling at 11 years (132 payments). Putting 10% down meaningfully improves both the rate (0.05% lower) and the structure (MIP eventually ends). For buyers who can reach 10%, this is worth doing specifically for the cancellation benefit.

Annual MIP for 15-year loans: 0.40% (LTV above 90%), 0.15% (LTV 90% or below). 15-year FHA loans carry dramatically lower MIP rates. Combined with faster amortization, 15-year FHA is sometimes the right choice for buyers who can afford the higher payment and want to minimize total insurance cost.

Historical note: The March 2023 reduction from 0.85% to 0.55% annual MIP (per HUD Mortgagee Letter 2023-05) saved approximately $900/year on a $300,000 loan. This was a significant change that materially improved FHA’s competitiveness versus conventional in the 580–680 score range where LLPAs make conventional expensive.

Conventional PMI in Texas: How It Compares

Conventional PMI is purchased by the lender from a private mortgage insurer and paid monthly by the borrower. Rates vary by: LTV (higher LTV = higher PMI rate), credit score (lower score = higher PMI rate), property type, and the specific PMI company. Representative Texas conventional PMI rates by scenario in 2025:

• 95% LTV (5% down), 720+ FICO: approximately 0.55–0.70%/year
• 95% LTV, 680 FICO: approximately 0.70–0.85%/year
• 95% LTV, 640 FICO: approximately 0.90–1.10%/year
• 90% LTV (10% down), 720+ FICO: approximately 0.35–0.50%/year
• 90% LTV, 680 FICO: approximately 0.50–0.65%/year
• 85% LTV (15% down), 720+ FICO: approximately 0.20–0.35%/year

The critical conventional PMI advantage: automatic cancellation. The Homeowners Protection Act (HPA, 1998) requires lenders to automatically cancel PMI when the loan balance reaches 78% of the original purchase price through normal amortization. Borrowers can also request cancellation when they reach 80% LTV with a good payment history and, in some cases, with an appraisal showing 80% LTV from appreciation (not just amortization — though lender discretion applies to appreciation-based cancellation requests). On a $285,000 conventional loan at 4% annual Texas appreciation: the loan balance reaches 78% of original purchase price in approximately year 11 through amortization alone. With appreciation factored in, LTV can reach 80% in year 7–9.

The MIP vs. PMI Comparison for Texas Buyers

The head-to-head comparison at common Texas buyer scenarios, 30-year loans:

Scenario A: 620 FICO, $280,000 purchase, 5% down

FHA: UFMIP $4,753 financed. Annual MIP 0.55% = $131/month year 1. MIP never cancels (3.5% down). Rate benefit: no LLPAs, so FHA rate = 6.875% (comparable market rate). P&I: $1,839. Total P&I + MIP: $1,970/month.

Conventional: LLPA at 620/95% LTV: approximately 3.25% = $8,645 in pricing cost, equivalent to approximately +0.65% rate. Effective rate: 7.50%. P&I: $1,990. PMI at 0.95%: $224/month. P&I + PMI: $2,214/month. PMI cancels ~year 11.

FHA saves $244/month at 620 FICO. Over 11 years until conventional PMI would have cancelled: FHA saves $32,208 in total payment cost. Conventional’s post-cancellation savings (no MIP vs. $131/month FHA MIP continuing): $131 × 228 months = $29,868. At 11+ year holds, conventional’s PMI cancellation advantage eventually exceeds FHA’s early years savings — break-even is approximately year 21. For any realistic hold of 5–12 years, FHA produces lower total cost at 620 FICO.

Scenario B: 700 FICO, $280,000 purchase, 10% down

FHA: 10% down, UFMIP $4,284 financed. Annual MIP 0.50% = $118/month. MIP cancels at 11 years. Rate 6.875%. P&I: $1,756. Total P&I + MIP: $1,874/month through year 11.

Conventional: LLPA at 700/90% LTV: approximately 0.50% = $1,260 in pricing cost, ~+0.10% rate. Effective rate: 7.0%. P&I: $1,677. PMI at 0.50%: $117/month. P&I + PMI: $1,794/month. PMI cancels approximately year 9 with 4% appreciation.

At 700 FICO with 10% down, conventional saves $80/month. Over 9 years: $8,640 total. But FHA’s 10% down MIP also cancels at year 11 — the long-term cost difference is small. For buyers at 680–720 with 10% down, the programs are genuinely close and detailed side-by-side analysis with your specific numbers is warranted before choosing.

How to Eliminate FHA MIP in Texas

The only paths to eliminating FHA MIP on a 30-year loan with less than 10% down:

Refinance into conventional: When your LTV drops below 80% (no PMI required) due to appreciation and amortization, refinance into a conventional loan. FHA MIP disappears permanently. Texas homes in major metros have appreciated at 4–7% annually over the past decade. A Texas buyer who put 3.5% down in 2023 and lives in a market appreciating 5%/year can reasonably expect to refinance into conventional without PMI in approximately 6–8 years — at which point the refinance closing costs are recovered within 2–3 years of MIP savings.

Put 10% down at purchase: MIP cancels at 11 years regardless of appreciation. For buyers who have 10% available, this is structurally better than 3.5% down for any planned hold beyond 11 years.

Pay down to 78% LTV from original purchase price: This doesn’t work for FHA — unlike conventional, FHA with less than 10% down doesn’t allow MIP cancellation regardless of LTV reached through paydown. Only the refinance path eliminates lifetime MIP on this structure.

Texas-Specific MIP Considerations

Texas FHA buyers benefit from two state-specific features that interact with MIP planning. First, Texas’s homestead exemption creates an appraisal protection: once you file the homestead exemption, your taxable assessed value can only increase 10% per year. But your home’s market value (relevant for the LTV calculation supporting a conventional refinance) can appreciate faster. A Texas homeowner in a strong appreciation environment may reach the 80% LTV threshold for a conventional refinance sooner than the 10% annual cap on taxable assessed value would suggest — because the lender’s LTV calculation uses market appraised value, not the tax-capped assessed value.

Second, Texas’s no-income-tax environment means more of a borrower’s income is available for housing — partially offsetting the state’s high property tax burden. For lower-income FHA borrowers, the effective monthly cost of Texas homeownership (PITI minus income tax savings from mortgage interest deduction, which are typically zero for standard deduction takers) is somewhat more manageable than in comparable-income-tax states where PITI competes with state income tax obligations for the same monthly income.