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FHA Mortgage Insurance Requirements

Are FHA Loans required to carry mortgage insurance?

The chance always exists that borrowers will default on their loans. The chance is even greater amongst the population to whom FHA-approved lenders currently offer loans. Generally, those who give a down payment on their houses of less than 20 percent are more likely to stop making their monthly mortgage payments; FHA-backed loans only require a 3.5 percent down payment. This is one of the reasons that FHA mortgage insurance is required of these borrowers.

Right now, two types of mortgage insurance may apply to FHA loans. The first type is the FHA Upfront Premium and this is carried on all FHA loans. The second type are the Annual Premiums and these are remitted on a monthly basis. FHA mortgage insurance is very affordable as compared to other loan types.

What is mortgage insurance?

Anyone considering applying for a FHA loan must obtain an answer to the question, "What is mortgage insurance?" An FHA insured mortgage is one that has been insured against the possibility of a default. With a FHA insured mortgage, the lenders will be able to receive their investments back if the borrowers experience financial difficulties and need to stop making their payments.

What are the current premiums on FHA Mortgage Insurance?

New Mortgage Insurance Premiums: After October 4, 2010, the new FHA mortgage insurance annual premium will be for people depends on how much they offered as their down payments. If the length of the loan is longer than 15 years, borrowers who offered a down payment of at least five percent will see an increase of 110 basis points for the year; those who offered less than a five percent down payment will have an increase equal to 115 basis points.

Mortgage insurance rates will also increase for FHA mortgages with a term less than 15 years. If the down payment was equal to 10 percent of the purchase amount, the FHA mortgage insurance will only increase 25 basis points. For a down payment less than 10 percent, the FHA mortgage insurance will increase by a greater rate of 50 basis points.

The new Upfront Mortgage Insurance Premium has been decreased to 1.0% of the loan amount, down from 1.5%.


Upfront Premium:  FHA will charge an upfront premium in an amount equal to the following percentages of the mortgage: 

Purchase Money Mortgages and Full-Credit Qualifying Refinance = 1 Percent

    Streamline Refinance (all types) = 1 Percent


Annual Premium:  An annual premium, shown in basis points below, to be remitted on a monthly basis, will also be charged based on the initial loan-to-value ratio and length of the mortgage according to the following schedule:


LTV

               Loans >15 Years

               LTV

               Loans < 15 Years

< 95%

               .110

               < 90%

               None

> 95%

               .115

               > 90%

                .50


Highlights Regarding FHA’s Mortgage Insurance Premiums

  • All loans to borrowers with a credit score must be risk-classified by FHA’s TOTAL Mortgage Scorecard.
  • Borrowers with decision credit scores below 500 are not eligible for FHA-insured mortgage financing.
  • Borrowers without credit bureau scores will need to be manually underwritten and deemed as eligible based on criteria described in Mortgagee Letter 2008-11.

What is LTV?

For insurance premium purposes and eligibility for FHA mortgage insurance, the LTV (loan-to-value ratio), computed to two decimals (e.g., 95.65), is calculated by dividing the mortgage amount prior to adding on any upfront mortgage insurance premium by the sales price or appraised value, whichever is less. 

For refinance transactions, which often include closing costs in the loan amount, the LTV is determined by dividing the loan amount prior to adding on any upfront mortgage insurance premium by the appraiser’s estimate of value.

When does mortgage insurance end on FHA Loans?

The FHA mortgage insurance premium is not something that borrowers necessarily have to pay throughout the entire length of the loan. Borrowers will no longer be required to pay for this insurance when their loan-to-value amounts reach 78 percent; the length of the loan must be 15 years or less. For loans longer than 30 years, borrowers may stop paying for mortgage insurance after five years; their loan-to-value ratios must also be equal to 78 percent.

More information on FHA Mortgages

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 What's great about an FHA Mortgage?

  • FHA Mortgages require a Low 3% down payment.
  • Non-occupant, co-borrower are permitted for qualifying for an FHA Mortgage.
  • FHA Mortgage Loans use Expanded qualifying ratios.
  • There are no prepayment penalties for an FHA Mortgage.
  • An FHA Mortgage is fully assumable.
  • FHA Mortgages have lower MI premiums.
  • An FHA Home Loan is eligible for non-credit qualifying, streamline refinance.
  • An FHA Mortgage is available all areas of the country, provided a market exists for the property and the home meets HUD's minimum property standards.
  • FHA Home Loans may be used to purchase or refinance a new or existing one to four family home in urban and rural areas, including manufactured homes on permanent foundations.
  • FHA Mortgages are offered at terms of 15 or 30 years.



 What types of FHA Mortgages are available?

Fixed Rate Mortgage
Most FHA mortgages are fixed-rate mortgages. With a fixed rate FHA Mortgage, you always know exactly how much your monthly payment will be. The Daily FHA Mortgage Rate is usually better a conforming 30 year fixed rate with no points and daily FHA rate with points is even better. Contact us for today's free FHA mortgage rates.

Adjustable Rate Mortgage
With FHA's adjustable rate mortgage (ARM), the initial interest rate and monthly payments are low, but these may change during the life of the loan. FHA rates are based off of the 1 Year CMT.

The maximum amount that the interest rate that an ARM FHA Mortgage may increase or decrease in any one year is 1 or 2 percentage points, depending upon the type of ARM that is chosen. Over the life of the loan, the maximum interest rate change is 5 or 6 percentage points over the initial interest rate.




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