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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.
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 1.00% of the Base FHA Loan amount (effective April 18, 2011).
For Example:
>> If John purchases a home for $200,000 with 3.5% down, his base FHA loan amount would be $193,000
>> The UFMIP of 1.00% is multiplied by $96,500, equaling $1,930
>> This amount is added to the base loan, for a total FHA loan of $194,930
Monthly Mortgage Insurance (MMI):(effective April 18, 2011)
- Equal to 1.15% 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 1.10% 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 .50% of the loan amount divided by 12 – when the Loan-to-Value is greater than 95%, and the term is equal to or less than 15 years
- Equal to .25% of the loan amount divided by 12 – when the Loan-to-Value is less than or equal 95%, and the term is equal to or less than 15 years
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, 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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Related Articles – Mortgage Approval Process:
- Basic Mortgage Terms
- How Much Can I Afford?
- Common Documents Required For A Mortgage Pre-Approval
- Top 8 Questions To Ask Your Lender During Application Process
- What’s The Difference Between An Investment Property, Second Home and Primary Residence?
- Seven Items Real Estate Agents Need To Know About Your Mortgage Approval
March 28, 2010 by Craig Fowler · Leave a Comment
