HOW FHA MORTGAGE INSURANCE PREMIUMS WORK

HOW FHA MORTGAGE INSURANCE PREMIUMS WORK

The Federal Housing Administration does not own or originate any mortgage.  FHA is essentially an insurance program.  Because FHA guidelines are less stringent than conventional loans, the FHA insures the investors against loss.  It is this insurance, also known as MIP that many homeowners want to get rid of.

As a homeowner, though, your mortgage belongs to you. You can always ask to refinance your FHA MIP away and, as home values continue to climb, that’s exactly what FHA-backed homeowners have been doing and should look into.

Get rid of your FHA MIP via a refinance. Call today. 855-ESCALA-1

FHA Annual Mortgage Insurance Premiums

The second type of Federal Housing Administration mortgage insurance is the FHA’s annual Mortgage Insurance Premium (MIP). Annual MIP is paid in 12 installments per year, and is included in your monthly mortgage payment.

On your monthly mortgage statement, FHA MIP is a line-item, often listed as “HUD Escrow”, “Risk-Based HUD”, or “Monthly Mortgage Insurance”. It’s rarely shown as “FHA mortgage insurance”

Annual MIP is required for all FHA mortgages. The size of your premium will depend on your loan’s specific characteristics. Annual FHA MIP rates are as follows:

  • 15-year loan terms with loan-to-value over 90% : 0.70 percent annual MIP
  • 15-year loan terms with loan-t0-value under 90% : 0.45 percent annual MIP
  • 30-year loan terms with loan-to-value over 95% : 1.35 percent annual MIP
  • 30-year loan terms with loan-to-value under 95% : 1.30 percent annual MIP

FHA borrowers can also expect an additional 0.25 percentage point premium on loans exceeding $625,500, but less than $729,750. Such “jumbo FHA loans” are available in high-cost areas only, where the median home sale price handily exceeds the national average; and for refinances.

The maximum FHA loan size for 1-unit homes was reduced to $625,500 in late-2013.

Also, note that first-time homebuyers using the FHA HAWK program — Homeowners Armed With Knowledge — get access to FHA MIP discounts of 50 basis points off upfront MIP and up to 25 basis points on annual MIP.

ELIMINATE YOUR FHA MORTGAGE INSURANCE

FHA mortgage insurance is never permanent. It can either go away on its own, or you can refinance it away.

For homeowners whose FHA mortgage pre-dates June 3, 2013, MIP goes away when certain conditions are met :

  • 30-year loan term : Annual MIP is automatically canceled once the loan reaches 78% loan-to-value and annual MIP has been paid for at least 60 months.
  • 15-year loan term : Annual MIP is automatically canceled once the loan reaches 78% loan-to-value. There is no requirement for MIP to be paid for at least 60 months.

Homeowners should not that LTV calculations are based on the FHA’s last known value of the home — not its current appraised value. For many people, the “last known value” is the value of the home at the date of purchase; the last time the home was FHA-appraised.

For some quick math, a 30-year FHA mortgage with 3.5 percent downpayment will reach 78% LTV in roughly 11 years. By contrast, a 15-year fixed with 3.5 percent down would reach 78% LTV in just over two years.

You can take matters into your own hands, though, and end your MIP sooner.

Many FHA homeowners are using today’s market to switch to a Fannie Mae or Freddie Mac loan instead.

All you need is 5% equity.

With 5% equity, homeowners often find cheaper to be in a conventional one versus an FHA one.

  1. Mortgage insurance rates are lower via Fannie Mae and Freddie Mac
  2. Mortgage insurance payments cancel out once your home gets to 20% equity

For homeowners with more than 5% equity, the improvement is even more stark. This is because mortgage insurance premiums for a conventional loan drop as a home’s LTV drops. With an FHA loan, by comparison, MIP is the same for everyone.

Conventional mortgage rates are near 14-month lows and U.S. home values are up by as much than 20% since 2012. For homeowners with an FHA loan, the best refinance option may be to leave the FHA altogether.

Refinance your FHA loan into a conventional one. Call today 855-ESCALA-1