Breaking news on FHA mortgage insurance premiums. There is a one-time FHA mortgage insurance premium and a lifetime annual FHA mortgage insurance premium on FHA loans for the life of a 30-year fixed-rate mortgage.
FHA mortgage insurance premiums guidelines require a one-time FHA upfront and an annual 0.85% FHA mortgage insurance premium for the life of a 30-year fixed-rate FHA loan. However, HUD, the parent of FHA, has reduced the 0.85% annual FHA MIP to 0.55%. This is a 30 basis point reduction on a lifetime annual FHA mortgage insurance premium.
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 choose for a home purchase or refinance. This article will discuss and cover FHA Mortgage Insurance Guidelines on FHA Loans.
Upfront FHA MIP
We will be discussing FHA loans in this article. FHA loans are more popular than ever because of their many advantages:
- The 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 Mortgage Insurance Premium
With every advantage, there are also disadvantages. One of the major disadvantages of FHA loans is the rules with FHA MIP. FHA mortgage insurance is much more expensive than conventional, USDA, and VA Loans.
Before jumping into an FHA mortgage loan, you need to fully understand the rules and regulations on the mechanics of how the FHA MIP work. Borrowers should decide whether it is the right program for them.
FHA, the Federal Housing Administration, is a governmental entity insures mortgage loans. They have no role in buying, selling, or funding mortgage loans. Fannie Mae and Freddie Mac are different than the Federal Housing Administration. Mainly because they purchase mortgage loans and create market liquidity. The Federal Housing Administration only insures mortgage loans.
About HUD and FHA Loans
HUD creates rules, regulations, and guidelines for mortgage lenders on FHA loans. Mortgage loans that meet the rules, regulations, and guidelines of the Federal Housing Administration are often referred to as FHA loans.
Mortgage lenders then follow the FHA mortgage guidelines and underwrite these loans.
If the FHA loans were to default, the Federal Housing Administration would repay the loss the bank suffered via the FHA MIP.
How FHA Gets Funding To Insure Defaulted FHA Loans
When a mortgage loan defaults and has been an FHA-insured loan, it is paid by the Mutual Mortgage Insurance fund. It is also known as the MMI fund. The FHA Upfront MIP and the annual MIP fund, the Mutual Mortgage Insurance fund. Borrowers pay these two types of mortgage insurance funding in one form or another.
Updated Guidelines on FHA Mortgage Insurance Premiums
Starting on June 3, 2013, there will be new FHA mortgage loan guidelines. The current FHA upfront mortgage insurance premiums are 1.75% of the mortgage loan amount.
The upfront FHA MIP is not paid in cash. It is added to your FHA mortgage loan balance by FHA. For example, if the 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 mortgage insurance premiums are not used in calculating the debt-to-income ratio.
Upfront FHA Mortgage Insurance Premiums
The upfront FHA MIP is a one-time cost. It is paid into the FHA’s Mutual Mortgage Insurance Fund at closing. Borrowers will be paying interest on the upfront MIP added to the mortgage loan for the duration of the mortgage.
Annual FHA mortgage insurance Premiums
Homeowners must pay the principal, interest, and FHA mortgage insurance premiums on FHA loans. The mortgage insurance is paid with your monthly mortgage payments every month.
15-year fixed rate mortgage loan terms with a loan to value over 90% :
- 0.85 percent annual MIP
15-year fixed rate mortgage loan terms with a loan to value under 90% :
- 0.45 percent annual MIP
30-year fixed rate mortgage loan terms with a loan to value over 95% :
- 0,85 percent annual MIP
30-year fixed rate mortgage loan terms with a loan to value under 95% :
- 0.80 percent annual MIP
Maximum FHA Loan Limits
The maximum FHA mortgage loan limit for 2023 is $472,030. FHA loan limit in high-cost counties is substantially higher than the standard $472,030. The FHA loan limit in high-cost counties is $1,089,300. FHA mortgage loans that exceed $472,030 are called high-balance FHA home loans in high-cost counties.
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 paid. This exemption changed the new FHA mortgage insurance premiums guidelines that took effect on June 3, 2013. FHA mortgage insurance premiums were not permanent before June 3rd, 2013. Michelle McCue of Gustan Cho Associates said the following:
For FHA mortgage loans underwritten before June 3, 2013, the following guidelines apply. 30-year fixed-rate mortgage loans: Annual FHA mortgage insurance premiums are automatically canceled once the FHA mortgage loan reaches 78% loan to value. The mortgage insurance premiums have been paid for at least five years
15-year fixed-rate mortgage loans. Annual FHA mortgage insurance premiums are 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 30-year FHA term loan.
Market Value Versus Appraised Value
FHA does not figure loan-to-value calculations on the house’s current value. They base it on the last known appraised value of the house, which is normally the house’s purchase price.
Changes In FHA Mortgage Insurance Premiums
Starting June 3, 2013, the Federal Housing Administration will implement new FHA mortgage insurance guidelines. Discussions of FHA mortgages requiring mandatory annual FHA mortgage insurance premiums for the 30-year fixed-rate mortgage loan have been finalized into law. We will keep you posted. Dale Elenteny of Gustan Cho Associates said the following:
On June 3, 2013, the FHA MIP rules changed. Some newer FHA loans will pay annual MIP for the full 30 years. Borrowers cannot eliminate FHA mortgage insurance premiums on all FHA purchases or refinance mortgage loans.
If you have an FHA loan and want to refinance to a conventional loan, please get in touch with us at 800-900-8569 or email us at firstname.lastname@example.org. Text us for a faster response. Or email us at email@example.com. Please visit us at www.gustancho.com.
HUD Increases FHA Loan Limits Due To Skyrocketing Home Prices
Many changes have happened with FHA since the initial publication of this blog post. HUD lowered their annual FHA MIP from 1.35% to 0.85% on 30-year fixed-rate FHA loans several years ago.
FHA Loan Limits got reduced from $410,000 to $294,515 in all areas except for high-cost areas several years ago. HUD, the parent of FHA, has been increasing FHA loan limits for the past six years due to skyrocketing home prices. The FHA loan limit for 2023 in common areas with average national median home prices is $472,030. FHA High-Balance Loans for 2023 are capped at $1,089,300.
Many California areas are high-cost areas where the FHA loan limits are capped at $970,800. HUD has increased FHA loan limits for six years in a row. FHA High-Balance Loans for 2023 are capped at $1089,300.
This blog was updated on February 27th, 2023.