Bills.com > Mortgage > Buy a Home > Home Purchase Articles > FHA Mortgage Insurance

FHA Mortgage Insurance

Buy a Home
HIGHLIGHTS
  • 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

The FHA loan insurance program was created to help first-time buyers get into homes. However, first-time buyers usually do not have 20% down payments and may have a spottier credit history. To help protect taxpayers from paying for defaulted FHA mortgages, the loans include mortgage insurance premiums (MIP).

Quick tip You can apply for an FHA loan with one of Bills.com’s pre-screened FHA loan providers.

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.

Up-Front Fees

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.

Rate

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.

Removal

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.

Exceptions

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.

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 didn't receive a response within 120 days, contact HUD. You can reach them by phone or by mail.

Phone: (800) 697-6967, 8:30 a.m. to 8:30 p.m. Eastern Standard Time, Monday through Friday.

Mail: U.S. Department of Housing and Urban Development, P.O. Box 23699, Washington, DC 20026-3699.

Note: 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.

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.

Comments (21)


J.J. A.
Orlando, FL  |  January 31, 2012
I currently have an FHA mortgage. I have been paying MIP on it for 3 years. If someone agrees to buy my home and ASSUME the loan. Will they only have to pay MIP for 2 years if they are able to get to a 78% LTV by then? Also, what are the costs to assume a loan. Are there any downpayment requirements... or is simply just closing costs? Thank you!
Victoria L.
Concord, CA  |  January 18, 2012
So I read that the 5 year clock resets during an FHA refi for MIP, but what about the 78% ltv? For example - if I originally purchased my home for 630k and then later refinanced the amount Of 530k (FHA streamline) would the 78% ratio apply To the 630k or 530k? Apologies if this looks Weird, I'm typing on an iPhone and the screen is wonky. Thanks for any advice!
Bills.com
January 18, 2012
The new MIP would be based on the LTV of your refinance loan. That means you would divide the amount of your refinance loan by the value of your home at the time of the refinance.
Eric G.
Irvine, CA  |  November 15, 2011
Does anyone know if one puts down 20% on an FHA 30 year, what fees are there still? I ask because it appears FHA will now have larger loan limits than the GSEs. Crazy, I know but it may make sense now to get an FHA even if putting down 20%. Thanks.
Bills.com
November 16, 2011
FHA loans require MIP upfront fees. Since your loan is for a longer period than 15 years you will be required to pay an annual premium for 5 years.

You are correct that an FHA loan, although more costly, is an alternative to consider if you exceed the loan limit on a conventional loan, even if this means paying extra costs.

I recommend that you get a Bills.com Quick Quote.
Susie H.
Washington, DC  |  November 08, 2011
So, I'm in the process of refinancing an FHA loan with another FHA loan of a lesser interest rate. I've had the original loan for 2 years. I understand the 5 year clock for FHA MIP payments will reset when I get the loan refinanced, but what I'm not clear on is whether the MIP payments can be terminated after those 5 years are up? I likely will still not have 78% of the loan paid off in 5 years, but I understand FHA stops collecting it after 5 years -- does this stand even if there is more than 78% still financed? Is it up to the lender whether the MIP payments continue after 5 years?
Bills.com
November 09, 2011
Your FHA requirements will restart when you take out the new loan. The same regulations exist regarding the termination of the FHA MIP payments. You may also be eligible for an FHA MIP refund. For more information on the refund contact the HUD offices at 1 (800) 697-6967.
Avatar
Daniel B.
Des Moines, IA  |  December 16, 2011
You didn't state the term of your new loan. If it is more than 15 years you will have to pay MIP until the balance gets down to 78% LTV. You stated you wouldn't have 78% of the loan paid off in 5 years, when I think you meant that you wouldn't have 22% of the loan paid off in 5 years, to get to a 78% unpaid balance in 5 years. Lastly, if you've refinanced on a 15 year term, your MIP may stop before 5 years if the balance unpaid gets below 78% LTV.
Tim R.
Naperville, IL  |  October 26, 2011
FHA is funded by the upfront and monthly MI, this is how the program is paid for it has nothing to do with your credit score or your "secure" job. If you do not want to have MI then put 20% down on a conventional loan.
Chase Y.
Chesapeake, VA  |  October 12, 2011
This is frustrating. What is the point in having a 780+ credit score, no late payments, and having a secure job? This elevated PMI essentially lowers the price range in which I can look. Absolutely absurd. $2k+ up front plus another $200/month. Why do those who've proven trustworthy have to pay for lenders mistakes?
Avatar
Daniel B.
Des Moines, IA  |  December 16, 2011
Your credit score and great credit history help you get a lower interest rate which expands the price range that you're able to afford. Your great credit score does not insure that the house value won't go down in a recession, housing bubble, etc. If the house value went down, and you didn't have any "skin" in the game, or lost the skin that you had in at the start, the lender isn't as protected because of the higher LTV that you started with. To avoid the mortgage insurance you can put down 20% on a conventional loan.
Duran D.
Los Angeles, CA  |  October 01, 2011
So everywhere i look at it seems if my loans is 95% or more of the home value, the PMI is 0.5%. But now I'm reading from these comments that it rose? Ive tried looking at the HUD website for current rates but cant find it. So how much is it now?
Bills.com
October 02, 2011
It was the upfront MIP (mortgage insurance premium) that increased, not the PMI. PMI rates are usually .5% divided over 12 months, but the rates do vary by lender.
Crystal P.
Moreno Valley, CA  |  September 30, 2011
I think I know what Chris is talking about. If he's in the boat I'm in, people like us did get screwed do to the bank raising PMI. I've been looking for a home since Jan and PMI was .55%. Now that I finally found a home, now PMI is 1.15%. Even though interest rates have dropped I'm now looking at $100 more a month. I understand their reasoning but it is a bummer that I have to pay the price of the recent people defaulting on their loans.
View All Comments
Thanks for your feedback!
Thank you for subscribing!