FHA MIP Versus Conventional PMI For Mortgage Borrowers
This BLOG On Pros And Cons Of FHA MIP Versus Conventional PMI For Mortgage Borrowers Was Updated On April 7, 2017
Mortgage Insurance is mandatory on all FHA Loans and Conventional Loans with less than 20% equity. There are pros and cons on FHA MIP Versus Conventional PMI. On this article, we will discuss 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 due to its lax credit and debt to income ratio requirements. FHA requires a mortgage insurance premium (MIP) for all FHA insured mortgage loans.
There are two types of FHA mortgage insurance premiums:
- A one time upfront premium of 1.75% which 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 FHA Loan amount or the borrower can roll the premium into the loan amount. Condominiums do not require any upfront premium. However, FHA borrowers who want to purchase condos need to make sure that the condominium is FHA 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 home buyers can purchase a home with low down payment and low rates. The only disadvantages of 30 year fixed rate FHA 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 FHA Loan term
Here are 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
- Minimum credit scores to qualify for FHA Loans is 580 FICO
- FHA Loans With Under 580 Credit Scores: Borrowers with credit scores under 580 FICO can qualify for FHA Loans but need 10% down payment
- FHA Guidelines On Collections And Charge Offs state that borrowers can qualify for FHA Loans 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 borrower by blood, law, or marriage.
- Gustan Cho Associates and The Gustan Cho Team specializes in FHA Loans with no lender overlays. We only follow HUD Guidelines
- Reverse Mortgages are FHA Loans
- FHA 203k Rehab Loans are FHA insured mortgage loans and only require 3.5% down payment
- One of the greatest benefits with FHA MIP Versus Conventional PMI is that the annual FHA MIP is constant at 0.85% no matter how good the borrower’s credit and/or loan to value is
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 with The Gustan Cho Team
- Homeowners can do a 85% Loan To Value (LTV) cash-out refinance
- Lower credit scores: 580 FICO for 3.5% down payment home purchase mortgage and 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:
- FHA requires 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 a FHA Loan one year into a Chapter 13 Bankruptcy and there is no waiting period after Chapter 13 Bankruptcy discharged date. Conventional Loans require a two year waiting period after 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 and four years after deed in lieu of foreclosure and/or short sale
- There is a four year waiting period from the discharged date of the Chapter 7 to qualify for Conventional Loan if 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 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 FHA fixed rate mortgage. With Conventional Loans, the annual mortgage insurance is not a fixed rate but depends on the borrower.
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 what the amount of private mortgage insurance
One Time Upfront PMI And LPMI
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 and 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 The Gustan Cho Team at 262-878-1965 or text Gustan on his cell at 262-716-8151 for faster response. You can also email us at email@example.com.