FHA Mortgage Insurance
FHA has two types of Mortgage Insurance. This mortgage insurance protects the lender, NOT the borrower, in case of a default (failure to pay) on the mortgage.
TIP: The insurance that would pay off your mortgage in the case of your death is called Mortgage LIFE Insurance. In most cases, it is my understanding that a regular life insurance policy would be a better choice for your heirs. Please check with your financial advisor/insurance provider before making any decisions on this.
The first type, Upfront Mortgage Insurance Premium (UFMIP), FHA UFMIP, is paid at the time of closing and is equal to 1.75% of your loan. This means that for every $100,000 in your loan size, your upfront mortgage insurance premium paid is $1,750. It is financed into the loan.
The second type of FHA mortgage insurance is annual mortgage insurance premiums (MIP).
Annual MIP rates vary based on:
- the length of your loan
- the amount you're borrowing
- your initial loan's LTV (Loan To Value)
How much is the annual (paid in monthly installments) mortgage insurance premium ?
15-year >90% 0.70 percent annual MIP
15-year 30-year >95% 0.85 percent annual MIP
The above FHA MIP schedule is effective January 26, 2015 and applied to all loans with FHA Case Numbers assigned on, or after, this date. This is paid for the life of the loan if over a 15 year repayment.
There have been lots of changes to FHA mortgage insurance premiums over the last several years. Beginning in 2008, the FHA raised mortgage insurance premiums (MIP) six times in 5 years, while also tightening its mortgage guidelines to reduce the number of "bad loans" it made.
Here's the history of FHA MIP, from 2008 to early-2015:
Prior to January 2008 : 0.50% annual MIP plus 1.50% upfront MIP
October 2008 : 0.55% annual MIP plus 1.75% upfront MIP
April 2010 : 0.55% annual MIP plus 2.25% upfront MIP
October 2010 : 0.90% annual MIP plus 1.00% upfront MIP
April 2011 : 1.15% annual MIP plus 1.00% upfront MIP
April 2012 : 1.25% annual MIP plus 1.75% upfront MIP
April 2013 : 1.35% annual MIP plus 1.75% upfront MIP
January 2015 : 0.85% annual MIP plus 1.75% upfront MIP
It will be important to discuss your loan options with your lender to determine YOUR best option. In some cases, FHA loans will be best. In others, Conventional Financing may make more sense. Be sure that you ask your lender why they are recommending one over another.
If you are considering purchasing a home in Maryland and want to be sure you are mortgage ready, my brother Tony and I will be happy to help! We help to make the mortgage process a pleasure!
If you already own your home, we are happy to provide a no-cost mortgage review to help you to determine if refinancing may be in your best interest. Please contact me at 410-960-2061.