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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 Bay Area 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 October, 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 1.00% is multiplied by $96,500, equaling $965.00
>> This amount is added to the base loan, for a total FHA loan of $97,465
Monthly Mortgage Insurance (MMI):
Equal to .90% 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 .85% 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
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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