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Posted 01/26/2015

FHA Lowers Its Mortgage Insurance Premiums (MIP) For All New Loans

Federal Housing Administration reduces FHA MIP for all new FHA loans

FHA MIP

FHA MIP is the monies that a homeowner pays to the Federal Housing Administration as part of the FHA mortgage program. FHA mortgage insurance premiums are in two phases -- upfront at closing, and annually in 12 monthly installments. The current upfront MIP fee is 1.75% of the borrowed amount; and, the typical annual MIP fee is 0.85% of the borrowed amount.

New FHA MIP Rates

2015 was the year of falling FHA MIP.

Beginning in January 2015, for the first time since 2001, the FHA reduced its mortgage insurance premiums for U.S. homeowners using the agency's flagship mortgage programs.

The move came just one year after the government agency took a $1.7 billion cash infusion from the U.S. Treasury -- the first in the FHA's 80-year history.

Better loan performance and rising home values pushed the group's Mutual Mortgage Insurance fund to an expected balance of +$7.8 billion, which was its largest reserve balance in several years, and which made the move possible.

With today's FHA mortgage rates at a 20-month best, it's an excellent time to compare FHA loans.

Click to see today's rates (Dec 4th, 2016)

About The FHA & FHA Loans

The Federal Housing Administration was formed in 1934 to help consumers with homeownership.

At the time, the typical home loan required buyers to make downpayments of fifty percent or more on a home; carried very high interest rates; and, required that loans be paid back in five years or fewer.

Terms like these prohibited most Americans from even thinking about homeownership. Terms were onerous and a 5-year loan term pushed payments to unmanageable levels.

Then, the National Housing Act of 1934 was passed.

This landmark law led to the creation of the FHA -- a federal mortgage insurer which could stimulate mortgage lending nationwide.

The National Housing Act of 1934 established two mortgage insurance programs which continue to be known by their original names today. The first -- Section 203 -- grants mortgage insurance on 1-to-4 unit homes.

The second, known as Section 207, insures multi-family homes.

The rules of the FHA insurance programs were basic. So long as a mortgage lender made sure that a loan met the FHA's requirements for "good loans", the agency would agree to insure it against loss.

These specifications, which would come to be known as "FHA guidelines", require lenders to check debt-to-income ratios for all borrowers; to verify adequate assets for a downpayment of 3.5% or more; and to verify that the subject property meets minimum FHA standards.

Via the FHA's insurance programs, banks were able to offload the risk of mortgage lending to the U.S. government.

At the same time, the FHA was able to create a secondary market where home mortgages could be sold, which then made more money available for lending.

Today, this market is known as the mortgage-backed securities (MBS) market and it's what fuels U.S. housing and makes 30-year and 15-year fixed-rate mortgage loans possible. Without MBS, mortgages might only be available as adjustable-rate loans.

For 79 years, the FHA's system worked without flaw. The agency was self-funded using mortgage insurance premiums (MIP) paid by FHA-backed homeowners and carried a strong reserve surplus.

Then, after a spate of bad loans last decade, the group's reserve fund dwindled below its congressionally-mandated minimum, which is two percent of the value of all outstanding FHA loans. The FHA was forced to raised its premiums to "restock" its reserves.

Beginning in 2008, the FHA raised mortgage insurance premiums (MIP) six times in 5 years, while also tightening its mortgage guidelines to reduce the number of "bad loans" it made.

Here's the history of FHA MIP, from 2008 to early-2015:

  • Prior to January 2008 : 0.50% annual MIP plus 1.50% upfront MIP
  • October 2008 : 0.55% annual MIP plus 1.75% upfront MIP
  • April 2010 : 0.55% annual MIP plus 2.25% upfront MIP
  • October 2010 : 0.90% annual MIP plus 1.00% upfront MIP
  • April 2011 : 1.15% annual MIP plus 1.00% upfront MIP
  • April 2012 : 1.25% annual MIP plus 1.75% upfront MIP
  • April 2013  : 1.35% annual MIP plus 1.75% upfront MIP
  • January 2015 : 0.85% annual MIP plus 1.75% upfront MIP

Note that the FHA consistently increased its annual MIP charges while also tweaking its upfront MIP in order to remain solvent and with sufficient reserves.

The moves were not enough.

In late-2013, for the first time in its history, the FHA was forced to draw close to two billion dollars from the U.S. Treasury. Since that time, however, the FHA's fortunes have reversed.

Fewer loans have gone bad and, because of a change in how the FHA cancels MIP, the agency has been collecting bigger mortgage insurance premiums from its homeowners, over a larger number of years. As a result, the FHA now shows a positive capital reserve balance.

This is why the FHA could reduce its FHA MIP in 2015 for the first time since 2001.

Click to see today's rates (Dec 4th, 2016)

FHA Mortgage Insurance Premiums

The FHA is not a mortgage lender. It's a mortgage insurer. And, like other insurers, the FHA collects regular payments known as premiums which fund the claims it pays to lenders.

FHA mortgage insurance premiums are split into two parts.

The first part is the Upfront Mortgage Insurance Premium (UFMIP). Under the FHA's new plan, UFMIP is paid at the time of closing and is equal to 1.35% of your loan. This means that for every $100,000 in your loan size, your upfront mortgage insurance premium paid is $1,350.

Most people add their upfront MIP to their mortgaged amount because UFMIP does not count against loan-to-value (LTV). A home buyer making the minimum FHA downpayment of 3.5 percent, then, will often carry an initial loan-to-value closer to ninety-eight percent.

Also, homeowners can earn an UFMIP refund via a refinance.

When FHA-backed homeowners use the FHA Streamline Refinance program within 36 months of closing, a portion of the upfront MIP paid is refunded in full. Refunds range from 68 percent of the initial amount paid to ten percent -- depending on how soon you refinance.

The longer you wait, the lower your FHA MIP refund.

The second type of FHA mortgage insurance is annual. Annual MIP rates vary based on the length of your loan, the amount you're borrowing, and your initial loan's LTV.

The complete MIP schedule for FHA loans sized $625,000 or less, as of December 4, 2016 is as follows :

  • 15-year loan terms with loan-to-value over 90% : 0.70 percent annual MIP
  • 15-year loan terms with loan-to-value under 90% : 0.45 percent annual MIP
  • 30-year loan terms with loan-to-value over 95% : 0.85 percent annual MIP
  • 30-year loan terms with loan-to-value under 95% : 0.80 percent annual MIP

The above FHA MIP schedule is effective January 26, 2015 and applied to all loans with FHA Case Numbers assigned on, or after, this date. Loans above $625,000 are subject to an additional 25 basis point (0.25%) annual FHA MIP increase.

Note that rates have dropped 50 basis points (0.50%) annually for all 30-year FHA loans, marking the first drop in FHA MIP since 2001.

The new rates applies to all FHA loans including the 203k refinance loan, which is used for home construction; and, special FHA programs such as the Back to Work program for consumers with a recent bankruptcy, foreclosure, or short sale, and the FHA Streamline Refinance.

Note, however, that the number of years that a homeowner must pay FHA MIP varies by loan type. Loans for which the initial downpayment was 10% or more carry FHA MIP for 11 years from the date of the mortgage.

All other FHA loans pay FHA MIP for as long as the loan is active. That is, not paid-in-full or refinanced away.

Click to see today's rates (Dec 4th, 2016)

What Are Today's Mortgage Rates?

Buying a home with FHA financing has never been cheaper and millions of U.S. homeowners with FHA-backed loans are now eligible to refinance.

Get today's live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.

Click to see today's rates (Dec 4th, 2016)

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.

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2016 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)