MIP vs. Guarantee Fee vs. Funding Fee 2026: Mortgage Insurance Costs by Program

Every government-backed loan program has a mechanism for covering default risk. FHA uses mortgage insurance premiums, USDA uses a guarantee fee, and VA uses a funding fee. Each is structured differently, calculated differently, and has different waiver rules. MLOs who can compare these costs across programs make better product placement decisions and explain total cost of homeownership more accurately.

FHA Mortgage Insurance Premium (MIP)

FHA charges an upfront MIP of 1.75% of the loan amount, financed into the loan. It also charges an annual MIP ranging from 0.15% to 0.75% depending on loan term, LTV, and loan amount, paid monthly. For loans with less than 10% down, annual MIP continues for the life of the loan. With 10% or more down, MIP cancels at 11 years. MIP is never waived for any borrower -- even first-time homebuyers with 640 FICO pay full MIP.

USDA Guarantee Fee

• ✦Upfront guarantee fee: 1.00% of the loan amount, financed into the loan
• ✦Annual fee: 0.35% of the remaining balance, paid monthly (lower than FHA annual MIP)
• ✦No FICO-based adjustment to the fee -- all borrowers pay the same rate
• ✦The annual fee does not cancel based on LTV like PMI -- it continues for the life of the loan
• ✦Lower total cost than FHA for borrowers who stay in the home long-term at similar LTV tiers

VA Funding Fee

The VA funding fee ranges from 1.25% to 3.30% depending on down payment, loan type, and whether it is the borrower's first use of VA benefits. First-time use with no down payment is 2.15%. Subsequent use with no down payment is 3.30%. The fee is completely waived for veterans with a service-connected disability rating of 10% or greater, surviving spouses of veterans who died in service, and Purple Heart recipients on active duty. Always verify exemption status through the VA COE before calculating the funding fee.