Understanding the FHA Mortgage Insurance Premium MIP

Understanding the FHA Mortgage Insurance Premium MIP

* Disclaimer – all information in this article is accurate as of the date this article was written *

The FHA Mortgage Insurance Premium is an important part of every FHA loan.

 Understanding the FHA Mortgage Insurance Premium MIPimage shadow Understanding the FHA Mortgage Insurance Premium MIP

There are actually two types of Mortgage Insurance Premiums associated with FHA loans:

1.  Up Front Mortgage Insurance Premium (UFMIP) – financed into the total loan amount at the initial time of funding

2.  Monthly Mortgage Insurance Premium – paid monthly along with Principal, Interest, Taxes and Insurance

Conventional loans that are higher than 80% Loan-to-Value also require mortgage insurance, but at a relatively higher rate than FHA Mortgage Insurance Premiums.

Mortgage Insurance is a very important part of every FHA loan since a loan that only requires a 3.5% down payment is generally viewed by lenders as a risky proposition.

Without FHA around to insure the lender against a loss if a default occurs, high LTV loan programs such as FHA would not exist.

Calculating FHA Mortgage Insurance Premiums:

Up Front Mortgage Insurance Premium (UFMIP)

UFMIP varies based on the term of the loan and Loan-to-Value.

For most FHA loans, the UFMIP is equal to 2.25%  of the Base FHA Loan amount (effective April 5, 2010).

For Example:

» If John purchases a home for $100,000 with 3.5% down, his base FHA loan amount would be $96,500

» The UFMIP of 2.25% is multiplied by $96,500, equaling $2,171

» This amount is added to the base loan, for a total FHA loan of $98,671

Monthly Mortgage Insurance (MMI):

  • Equal to .55% of the loan amount divided by 12 – when the Loan-to-Value is greater than 95% and the term is greater than 15 years
  • Equal to .50% of the loan amount divided by 12 – when the Loan-to-Value is less than or equal to 95%, and the term is greater than 15 years
  • Equal to .25% of the loan amount divided by 12 – when the Loan-to-Value is between 80% – 90%, and the term is greater than 15 years
  • No MMI when the loan to value is less than 90% on a 15 year term

The Monthly Mortgage Insurance Premium is not a permanent part of the loan, and it will drop off over time.

For mortgages with terms greater than 15 years, the MMI will be canceled when the Loan-to-Value reaches 78%, as long as the borrower has been making payments for at least 5 years.

For mortgages with terms 15 years or less and a Loan –to-Value loan to value ratios 90% or greater, the MMI will be canceled when the loan to value reaches 78%.  *There is not a 5 year requirement like there is for longer term loans.

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About the Author

Paul BayarenaPaul Bayarena originally joined Austin Capital Mortgage in 2001, after leaving Janus Capital, and quickly became one of their top mortgage consultants, and is readily recognized for his innovative thinking.Mr. Bayarena takes a financial planning approach when consulting his clients, understanding that each client is unique in their long term and short term needs.In doing so, Mr. Bayarena has established and maintained long term relationships with his clients, which has allowed him to become a referral based consultant.[schema type="person" name="Paul Bayarena" orgname="Austin Capital Mortgage" jobtitle="Loan Officer" url="http://texasmortgagelender.com/" description="Texas mortgage loan officer for Austin Capital Mortgage" street="6836 Bee Caves Road" city="Austin" state="TX" postalcode="78746" country="US" email="paul@austincapitalmortgage.com" phone="512-524-9414" ]View all posts by Paul Bayarena →

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