FHA MIP Versus Conventional PMI For Mortgage Borrowers
This Article Is About FHA MIP Versus Conventional PMI For Mortgage Borrowers
Mortgage Insurance is mandatory on all FHA Loans and Conventional Loans with less than 20% equity.
- There are pros and cons of FHA MIP Versus Conventional PMI
- In this article, we will discuss the Pros And Cons Of FHA MIP Versus Conventional PMI For Mortgage Borrowers and the benefits of FHA Loans
- FHA Loans is one of the most popular loan programs in the United States
- This is due to its lax credit and debt to income ratio requirements
- HUD requires a mortgage insurance premium (MIP) for all FHA insured mortgage loans
In this article, we will discuss and cover FHA MIP Versus Conventional PMI For Mortgage Borrowers.
Types Of Mortgage Insurance
There are two types of FHA mortgage insurance premiums:
- A one time upfront premium of 1.75% can be rolled into the loan
- Annual FHA MIP which is 0.85% of the balance of the loan on 30 year fixed rate mortgages
The upfront FHA MIP of 1.750% of the loan amount can be financed into the loan amount or the borrower can roll the premium into the loan amount.
- Condominiums do not require any upfront premium
However, borrowers who want to purchase condos need to make sure that the condominium is HUD Condo Approved.
Why Are FHA Loans So Popular?
Many home buyers think that FHA Loans are for people with bad credit.
- This is not always the case
- FHA Loans are extremely popular because homebuyers can purchase a home with a low down payment and low rates
The only disadvantage of 30 year fixed rate mortgages is it not just requires the one time upfront FHA MIP of 1.75% but the annual FHA MIP over the life of the 30 year Loan term.
Here Are The Benefits Of FHA Loans
- 3.5% down payment on home purchases
- FHA Loans are for one to four-unit owner occupant homes
- Second homes and investment home loans do not qualify for FHA Loans
- The minimum credit scores to qualify for FHA Loans is 580 FICO
- Borrowers with credit scores under 580 FICO can qualify for FHA Loans but need a 10% down payment
FHA Loan With Bad Credit
FHA Guidelines On Collections And Charge Offs state that borrowers can qualify without needing to pay outstanding collections and charge off accounts:
- Under HUD Guidelines the maximum front end DTI is 46.9% and back end DTI is 56.9% for borrowers with at least a 620 credit score in order to get an approve/eligible per DU/LP FINDINGS
- Non-Occupant Co-Borrowers are allowed on FHA Loans
- Non-Occupant Co-Borrowers need to be related to the borrower by blood, law, or marriage.
- Gustan Cho Associates specializes in FHA Loans with no lender overlays
- We only follow the HUD Guidelines
- Reverse Mortgages are FHA Loans
- FHA 203k Rehab Loans are FHA insured mortgage loans
- Only require 3.5% down payment
- One of the greatest benefits of FHA MIP Versus Conventional PMI is that the annual FHA MIP is constant at 0.85%
This holds true no matter how good the borrower’s credit and/or loan to value is.
Benefits Of FHA MIP Versus Conventional PMI For First Time Home Buyers
FHA programs have many benefits for first time home buyers and for home purchasers who have had the following:
- Prior bad credit
- 3.5% down payment on home purchases
- Homeowners can do FHA Streamline Mortgage with no credit scores, no income, no appraisal, and close in two weeks
- Homeowners can do an 0.85% Loan To Value (LTV) cash-out refinance
Lower credit scores:
- 580 FICO for 3.5% down payment home purchase mortgage
- 10% down payment for borrowers under 580 FICO
Up to 6% sellers concessions allowed by sellers to contribute to buyer’s closing costs
Outstanding Collections and Charge Off Accounts:
- These do not have to be paid in order to qualify for FHA Loans
Borrowers can qualify with prior bankruptcies and/or foreclosures after meeting the mandatory waiting period.
FHA Versus Conventional Mortgage After Bankruptcy & Foreclosure
Both FHA and Fannie/Freddie have loan programs for borrowers after bankruptcy and foreclosure.
Here are the mortgage guidelines after bankruptcy and foreclosure for FHA and Conventional Loans:
- HUD requires a two-year waiting period after Chapter 7 Bankruptcy discharged date versus Conventional Loans where it has a four-year waiting period
- HUD allows borrowers to qualify for an FHA Loan one year into a Chapter 13 Bankruptcy
- There is no waiting period after the Chapter 13 Bankruptcy discharged date
- Conventional Loans require a two year waiting period after the Chapter 13 Bankruptcy discharged date
- HUD allows borrowers to qualify for FHA mortgage three years after the recorded date of foreclosure, deed in lieu of foreclosure, and short sale
- Conventional Loans require 7 year waiting period after foreclosure
- The waiting period is four years after a deed in lieu of foreclosure and/or short sale
- There is a four year waiting period from the discharged date of Chapter 7 to qualify for Conventional Loan if the borrower had mortgage part of Chapter 7 Bankruptcy
- FHA requires a three year waiting period from the recorded date of foreclosure and/or short sale date if they had mortgage part of Chapter 7 Bankruptcy
- The start date is very important
This is because most banks or lenders are in no hurry to transfer the deed out of the homeowners’ name.
Differences Of FHA MIP Versus Conventional PMI
As mentioned earlier, HUD has two separate types of mortgage insurance premiums on FHA mortgages.
- The upfront FHA MIP is 1.75% which is a one time cost and can be rolled into the loan
- Besides the upfront mortgage insurance premium, HUD requires an annual FHA MIP which is 0.85% of the loan balance that needs to be paid throughout the term and life of the 30-year loan
- With Conventional Loans, the annual mortgage insurance is not a fixed rate but depends on the borrower credit profile
Below is what determines private mortgage insurance on Conventional Loans:
- Any conventional loan amount where the borrower puts less than 20% down payment, private mortgage insurance is required
- Borrower’s credit scores
- Amount of down payment or loan to value
- The type of property will have a bearing on the amount of private mortgage insurance
FHA MIP Versus Conventional PMI With One-Time Upfront MIP
There are two ways conventional borrowers can avoid private mortgage insurance.
- One time upfront PMI
- Lender Paid Mortgage Insurance, LPMI
Like FHA’s upfront mortgage insurance premium, conventional borrowers can pay a one time upfront mortgage insurance.
- The one-time private mortgage insurance is when a conventional borrower pays a one time upfront PMI similar to the upfront FHA MIP
- They no longer have to pay mortgage insurance on purchases of less than 80% Loan To Value
The lender paid mortgage insurance or LPMI, is when the lender pays the monthly mortgage insurance premium but the cost to the borrower is that they get a higher mortgage rate.
If you have any questions on our upfront private mortgage insurance or LPMI conventional loan program, please contact Gustan Cho Associates at 262-716-8151 or text for a faster response. Or email us at [email protected]