FHA Mortgage Insurance Premiums Guidelines On FHA Loans

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FHA Mortgage Insurance Premiums Guidelines On FHA Loans

This BLOG On FHA Mortgage Insurance Premiums Guidelines On FHA Loans Was UPDATED On December 6th, 2018

Are you interested in a home purchase loan or a refinance loan?

  • There are different mortgage loan programs borrowers should consider when deciding on the type of mortgage loan they decide to choose on home purchase or refinance

Upfront FHA MIP

We will be discussing FHA loans on this article.

  • FHA loans are more popular than ever because of its many advantages
    • Down payment requirement is only 3.5%
    • There are FHA loan programs that do not require appraisals on refinance mortgage loans
    • FHA loans have lower mortgage rates than conventional loans

All FHA Loans Require FHA Mortgage Insurance

With every advantage there are also disadvantages.

  • One of the major disadvantages with FHA loans is the rules with FHA MIP
  • FHA mortgage insurance are much more expensive and costly than conventional, USDA, and VA Loans

Rules And Regulations On FHA Mortgage Insurance

Before jumping into a FHA mortgage loan, you need to fully understand on the rules and regulations on the mechanics of how the FHA mortgage insurance premiums work. Borrowers should decide whether it is the right program for them.

HUD And FHA MIP

FHA, the Federal Housing Administration, is a governmental entity that insures mortgage loans.

  • They have no role in buying, selling, or funding mortgage loans
  • Fannie Mae and Freddie Mac is different than the Federal Housing Administration
  • Mainly because they purchase mortgage loans and create market liquidity
  • The Federal Housing Administration only insures mortgage loans

FHA Loans

FHA creates rules, regulations, and guidelines for mortgage lenders.

  • Mortgage loans that meet the rules, regulations, and guidelines of the Federal Housing Administration are often referred a FHA loans
  • Mortgage lenders then follow the FHA mortgage guidelines and underwrite these loans
  • In the event the FHA loans were to go into default, the Federal Housing Administration repays the loss the bank suffered via the FHA mortgage insurance premiums

How FHA Gets Funding To Insure Defaulted FHA Loans

When a mortgage loan defaults and it has been a FHA insured loan, it is paid by the Mutual Mortgage Insurance fund.

  • It is also known as the MMI fund
  • The Mutual Mortgage Insurance fund is funded by the FHA Upfront Mortgage Insurance Premium and the annual FHA Mortgage Insurance Premiums
  • These two FHA mortgage insurance funding is paid by borrowers in one form or another

Updated FHA Guidelines

Starting in June 3, 2013, there will be new FHA mortgage loan guidelines.

  • The current FHA upfront mortgage insurance premiums is set at 1.75% of the mortgage loan amount
  • The upfront FHA mortgage insurance premiums is not paid in cash
  • It is added to your FHA mortgage loan balance by FHA
  • As an example, if mortgage loan size were $100,000, the upfront mortgage insurance premiums would be $1,750
  • This figure is added to the $100,000 to yield your FHA mortgage loan size of $101,750
  • The good news is that the mortgage insurance premiums is not used in calculating loan to value ratio

Upfront FHA Mortgage Insurance Premiums

The upfront FHA mortgage insurance premiums is a one time cost. It is paid into the FHA’s Mutual Mortgage Insurance fund at the time of closing.

  • Borrowers will be paying interest on the upfront FHA mortgage insurance premiums that has been added to the mortgage loan for the duration of the mortgage

Annual FHA mortgage insurance premiums

The second form of FHA mortgage insurance premiums, borrowers needs to pay is the annual FHA Mortgage Insurance Premiums.  This mortgage insurance is paid with your monthly mortgage payments every month.

  • 15 year fixed rate mortgage loan terms with loan to value over 90% :
    • 0.85 percent annual MIP
  • 15 year fixed rate mortgage  loan terms with loan to value under 90% :
    • 0.45 percent annual MIP
  • 30 year fixed rate mortgage  loan terms with loan to value over 95% :
    • 0,85 percent annual MIP
  • 30 year fixed rate mortgage  loan terms with loan to value under 95% :
    • 0.80 percent annual MIP

Maximum FHA Loan Limits

The maximum FHA mortgage loan amount is $294,515.

  • However, this loan amount can be increase on high cost areas
  • For FHA mortgage loans that exceed $679,500 on high cost areas

FHA Mortgage Insurance Premiums On 15 Year Fixed Rate Mortgages

15 year fixed FHA mortgage loans that are 78% loan to value were exempt from annual FHA mortgage insurance premiums payment.

  • This exemption changed new FHA mortgage insurance premiums guidelines go into effect on June 3, 2013
  • FHA mortgage insurance premiums were not permanent prior to June 3rd, 2013
  • For FHA mortgage loans underwritten prior to June 3, 2013, the following guidelines apply:
  • 30 year fixed rate mortgage loans :
    • Annual FHA mortgage insurance premiums is automatically canceled once the FHA mortgage loan reaches 78% loan to value
    • The mortgage insurance premiums has been paid for at least 5 years
  • 15 year fixed rate mortgage loans :
    • Annual FHA mortgage insurance premiums is automatically canceled once the loan reaches 78% loan to value
    • On 15 year fixed rate mortgage loans, the minimum 5 year payment of FHA mortgage insurance premiums does not apply

Now, FHA MIP is permanent for the life of the 30 year FHA term loan.

Market Value Versus Appraised Value

FHA does not figure loan to value calculations on the current value of the house.

  • They base it on the last known appraised value of the house, which is normally the purchase price of the house

Changes In FHA Mortgage Insurance Premiums

Starting June 3, 2013, the Federal Housing Administration will be implementing new FHA mortgage insurance guidelines.

  • There is talk that some FHA mortgages will require borrowers pay the annual FHA mortgage insurance premiums for the duration of the 30 year fixed rate mortgage loan
  • We will keep you posted

Again, beginning June 3, 2013, the FHA MIP rules change. Some newer FHA loans will pay annual MIP for the full 30 years. If you have any questions or are interested in applying for a FHA purchase or refinance mortgage loan, please contact us at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com. Please visit us at  www.gustancho.com .

UPDATE TO THIS BLOG

Many changes have happened with FHA since the publishing this blog post.

  • FHA now has lowered their annual FHA MIP from 1.35% to 0.85% on 30 year fixed rate FHA loans
  • FHA Loan Limits got reduced from $410,000 to $294,515 in all areas except for areas classified as high cost areas
  • Many areas in California are in high cost areas where the FHA loan limits are capped at $679,500

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