FHA Mortgage Insurance
- The FHA program enables borrowers with low down payments to buy a home.
- In order to cover the risk of default, a monthly insurance premium (MIP) is added to the mortgage payment.
The FHA Mortgage Insurance Premium Program at a Glance
Editor’s note: FHA Mortgage Insurance Premium Changes starting April 9, 2012 and June 11, 2012. There is good news and bad news regarding the FHA MIP (Mortgage Insurance Premium) rates depending on the type of loan you are taking:
- Streamline Refinance Loan: The good news is that the mortgage insurance for FHA Streamline Refinance loans is decreasing starting June 11, 2012. The UFMIP (UFMIP) rate decreases to 0.01%, instead of 1%. The annual MIP will be set at 55 bps instead of 115 bps, regardless of the loan amount. That means a savings of $50 per month for every $100,000. To qualify for the lower UFMIP, your current FHA loan must have been delivered to the FHA before June 1, 2009.
- Single Family Mortgage Loan: The bad news affects new FHA home purchase loans and borrowers refinancing a non-FHA loan, is that the rates, starting April 9 2012 are increasing. The UFMIP increases to 1.75% instead of 1%. The annual MIP will increase by 10 bps. (That means an additional $8.33 per month for every $100,000). The increase in the rates was a result of the Temporary Payroll Tax Cut Continuation Act of 2011 signed by President Obama on Dec. 23, 2011.
The FHA Mortgage Insurance Premium
FHA mortgage insurance is similar to the private mortgage insurance (PMI) required for conventional mortgages with down payments below 20%, but there are some key differences.
Unlike the traditional PMI, the FHA MIP includes a 1.5% up-front fee at time of closing. The fee is usually included in the loan, so you pay it over the life of the loan. (See the editor’s note above for news about a change to this fee.)
The FHA MIP is also mandated at annual premium of 1.1% to 1.15% of the loan amount per year, divided over 12 months for fixed-rate loans. (Variable-term MIP rates are is 0.25% or 0.50% per month for 15-year or shorter-term loans.) PMI rates are usually .5% divided over 12 months, but the rates do vary by lender. (See the editor’s note above for news about a change to this fee.)
Unlike PMI, the FHA MIP is mandatory for the first five years of loans with terms of more than 15 years, even if your loan balance reaches 78% of the original home value or sales price. PMI premiums can often be removed if the loan balance is below 80% of the current market value. Conventional lenders are required to automatically remove PMI when the loan balance falls to 78% of the original loan amount.
There are some exceptions to the mandated FHA mortgage insurance premium. If you have a loan term of 15 years or less AND put down 10% or more, the MIP will be canceled when the loan balance is 78% of the original appraised value or original sales price, whichever is less. If you pay 20% down on a 15-year loan, you won’t be required to pay the MIP.
How the MIP Affects Your Loan Decision
Most people want to avoid paying mortgage insurance because it adds no value to the home and does not go towards the principal. If you do not have a 20% down payment, then you will most likely have to pay it for any loan, whether it is from the FHA or a conventional lender. In that case, carefully compare the costs of each loan.
If you have saved a 20% down payment and have a good credit history, then a conventional mortgage is probably better for you because you will not have to pay PMI on a 30-year mortgage, as you would with an FHA loan. However, if your down payment is a family loan or gift, you may not qualify for a conventional loan even with 20% down. In that case, an FHA loan with MIP may be your only option. If you can afford the higher payments for a 15-year mortgage, that may be the best option.
MIP and Other Baffling FHA Mortgage Insurance Acronyms
MIP is the least confusing of the FHA’s list of insurance-related acronyms, which includes CHUMS, SFIOD, and SFPCS-P. Fortunately, the FHA offers a decoder page: Terminology Used with Single Family Upfront Mortgage Insurance Premium.
FHA Mortgage Insurance Refunds
The FHA and HUD owe mortgage insurance premium refunds to some homeowner who received a loan between September 1, 1983 and January 1, 2001 due to excess earnings from the FHA’s Mutual Mortgage Insurance Fund. If you believe you qualify for a refund, you can visit the HUD refund page to verify eligibility. Do not hire someone else to trace your refund for you.
You may be eligible for a premium refund if you:
- Acquired an FHA loan after September 1, 1983
- Paid an up-front mortgage premium at closing
- Did not default on your mortgage
You may be eligible for a share of the excess earnings if you:
- Acquired your loan before September 1, 1983
- Have paid your loan for more than seven years
- Had your FHA MIP terminated before November 5, 1990
There are also exceptions for loan assumptions, FHA to FHA refinances, insurance claims by a mortgage company, and the statute of limitations.
In most cases, you would have been notified of the refund when HUD received notification that the FHA MIP on your loan was terminated. You would then be sent a check or an application. If you receive an application, read it carefully, compete it, have it notarized, and return it to HUD with the required proof of ownership.
|Contact HUD by Phone||Contact HUD by Mail|
8:30 a.m. to 8:30 p.m. EST
Monday through Friday
U.S. Dept. of Housing and Urban Development
P.O. Box 23699
Washington, DC 20026-3699
|All inquiries should include your name, your FHA case number, the date that the mortgage was paid-in-full, the property address, and your daytime phone number.|
If you did not receive a notice within 45 days of paying off your loan, confirm with your lender that they sent notification of MIP termination to HUD. If they did, contact HUD. If you have already applied and did not receive a response within 120 days, contact HUD. You can reach HUD by phone or by mail.
Mortgage insurance is considered a burden, but if it is the only thing standing between you and home ownership, it is a burden worth bearing.
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