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To calculate a Federal Housing Administration mortgage insurance premium, first determine the loan amount, and then calculate the upfront mortgage insurance premium and the monthly premium, according to Joey Campbell for SF Gate. The upfront premium of 2.25 percent is usually financed. The monthly mortgage insurance premiums are paid along with the mortgage and property taxes.

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For example, if the purchase price for an FHA-loan financed home is \$100,000, the loan amount is \$96,500 because the required 3.5 percent down payment is subtracted from the purchase price, notes Campbell. The upfront mortgage insurance premium is then added to the loan amount, raising the total to \$98,671.25. This sum is rounded down to \$98,650.00. The subtracted \$21.25 is collected from the borrower at closing. The monthly mortgage insurance premium is calculated by multiplying \$98,650 by 0.0055. This gives the yearly mortgage insurance premium of \$542.58. This sum is divided by 12 to equal the monthly mortgage insurance premium of \$45.21.

All FHA loans require mortgage insurance, explains Campbell. Mortgage insurance protects the lender. When borrowers default on FHA loans, lenders file claims against the FHA insurance fund. The fund then reimburses them for losses incurred as a result of the lost loan and expenses of the foreclosure process.

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