In mid-2013, the FHA changed its mortgage insurance premium (MIP) policies.
Formerly, FHA MIP typically canceled after 5 years assuming a 78% loan-to-value.Â Today, however, FHA mortgage insurance can last for a loan's full 30 years. The policy can be confusing -- especially because the amount of time you'll pay FHA MIP varies by your loan type.
When you use an FHA mortgage, you'll want to know for how long MIP is required.
For nearly 80 years, the Federal Housing Administration (FHA) has been assisting U.S. home buyers, providing flexible mortgage guidelines and low mortgage rates to help promote homeownership.
FHA loans allows for downpayments of as low as 3.5 percent and backs mortgages for borrowers with credit scores as low as 500. It also offers the FHA 203k construction loan, which helps home buyers to finance structural repairs into a home's purchase price.
The FHA is the world's larger insurer of mortgages and its programs are typically used by first-time home buyers and repeat buyers whose credit scores are less-than-perfect.
However, as the FHA's MIP policies have changed, so has the program's economic appeal.
FHA mortgage insurance premiums, which are split into two separate payments, are markedly more expensive as compared to 6 years ago.
Except for first-time home buyers hoping forÂ the FHA HAWK program, today's FHA borrowers pay a 1.75% upfront MIP fee to the agency at the time of closing, along with an annual MIP fee which is spread evenly over 12 annual mortgage payments.
There are five government agencies which insure low- and no-downpayment mortgages.
The Department of Veterans Affairs backs a 100% mortgage for members of the military and most veterans; the U.S. Department of Agriculture backs a no-money-down mortgage which is available in most suburban and rural neighborhoods; and, Fannie Mae and Freddie Mac offer a 97% LTV loan for anyone who qualifies.
However, it's the FHA which is the largest insurer of low-downpayment home loans.
In addition to serving first-time buyers, theÂ FHA loan can be a terrific fit for buyer-types such as the move-up buyer who has lost home equity and has little downpayment to carry ahead to a new home; and, for a buyer of a 2-unit, 3-unit or 4-unit homes.
FHA mortgage rates are typically lower by 25 basis points (0.25%) as compared to comparableÂ loan via Fannie Mae or Freddie Mac.
The FHA loan has some unique characteristics as compared to other loan types.
In addition, financing via the Federal Housing Administration gets homeowners access to theÂ FHA Streamline Refinance which is among the simplest, fastest refinance programs available to homeowners today.
TheÂ FHA Streamline Refinance guidelines waive verification of income, credit and employment; and require no home appraisal.
Prior to 2013, FHA mortgage insurance canceled automatically for homeowners whose mortgages were FHA-backed. Then, a change in FHA policy decreed that, for certain 30-year loans, mortgage insurance must be paid for as long as the loan is in effect.
Consumers have misconstrued this policy to mean "FHA MIP for life", which is a falsehood.
Paying MIP for life suggests that you'll make mortgage insurance premium payments to the FHA from today until the day you die. The truth is something different.
The FHA's official policy states that loans with an LTV over 90% must maintain MIP for as long as the loan is active. All other loans must pay FHA MIP for a period of 11 years.
The current FHA mortgage insurance premium is shown below :
INITIAL LTV (%)
FHA MIP TERM
|Â â‰¤ 15 yrs||Â â‰¤ 78||Â 11 years|
|Â â‰¤ 15 yrs||Â > 78 â€“ 90.00||Â 11 years|
|Â â‰¤ 15 yrs||Â > 90.00||Â Life of Loan|
|Â > 15 yrs||Â â‰¤ 78||Â 11 years|
|Â > 15 yrs||Â > 78 â€“ 90.00||Â 11 years|
|Â > 15 yrs||Â > 90.00||Â Life of Loan|
For some FHA loans only, you will pay mortgage insurance premiums until the loan is paid-off in full. This can be as long as 30 years or as few as 1-2 years,Â if you choose to cancel your FHA MIP with a refinance.
As today's mortgage rates have dropped, this is a route many FHA-backed homeowners have followed.
For some consumers, it's been sensible to ditch theÂ FHA loan with its interminable FHA MIP in favor of a conventional loan with higher rates but lower long-term costs.Â
Homeowners who move before their 30-year loan ends won't pay FHA MIP forever, either. The average household moves once every seven years.
The FHA-backed mortgage remains an important part of today's U.S. housing market. Along with its low downpayment guidelines, FHA mortgage rates are often low, too.
Compare today's FHA mortgage rates and see for how much home you qualify. Complimentary rate quotesÂ are available online atÂ no cost, with no obligation to proceed, and with no social security number required to get started.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
Barry L. Systems Analyst
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2015 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)