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Posted 02/27/2015

How Much Can You Save With The New FHA MIP?

New FHA MIP lowers today's "effective" FHA mortgage rates to record-low levels

FHA Reduces Mortgage Insurance Premiums

It's now cheaper to get an FHA loan.

In January 2015, the Federal Housing Administration (FHA) announced an immediate reduction in mortgage insurance premiums (MIP) on all new FHA loans.

The reduction, which is the FHA's first since 2001, is designed to make homeownership more affordable for buyers opting for the FHA's low-downpayment mortgage programs.

However, the change in FHA MIP makes it easier to refinance via the FHA, too. The new, lower mortgage insurance premiums have reduced the effective mortgage rate of an FHA loan, putting scores of existing FHA-backed homeowners "in the money" for an FHA Streamline Refinance.

In the first 30 days following the FHA MIP reduction, this site's FHA refinance mortgage rate requests jumped 226% as compared to the one-year average.

FHA mortgages are as inexpensive as they've ever been.

About The FHA And Annual FHA MIP

The Federal Housing Administration was born in 1934. Then, as now, the agency's mission was to promote homeownership nationwide.

In order to fulfill this mission, the FHA created an insurance program for U.S. mortgage lenders which protects them against home loan losses. So long as banks make loans which meet certain minimum standards, the FHA agrees to pay claims on loans which "go bad".

These minimum standards are known as the FHA guidelines and they encompass every loan trait imaginable.

Some of the guidelines are obvious. For example, FHA rules require borrowers to show proof of income and employment in order to make a home purchase; and require homes to meet minimum property standards of habitability.

Other FHA guidelines are somewhat esoteric.

As one example, FHA guidelines state that loans may not be used to purchase an investment property, but if the homeowner has since moved from the original home, that home may be refinanced as an investment property.

Guidelines also allow for a waiver of income and employment proof, in certain circumstances.

Note, though, that the FHA is not a lender. It's an insurer and the FHA's insurance premiums are paid by the borrower -- not the bank. This means that every FHA borrower makes a two-part monthly payment.

The first part goes to the bank for principal + interest, taxes, and homeowners insurance (PITI). The second, the FHA MIP, goes to the FHA directly.

The cost of FHA MIP varies from loan-to-loan. There is a fixed percentage which is based on your loan type and your loan's original loan-to-value, and that percentage is multiplied against your existing loan size.

Today, FHA MIP ranges from 45 basis points (0.45%) to 105 basis points (1.05%) against your borrowed amount annually. MIP is paid monthly, in 12 installments.

New FHA MIP For 2015 Loans

FHA mortgage insurance premiums are less expensive than they used to be.

On January 26, 2015, for the first time in 14 years, the Federal Housing Administration reduced its annual mortgage insurance premiums for all new 30-year FHA loans.

For 30-year FHA mortgages where the downpayment is less than 5 percent; and, for FHA refinances where the loan-to-value exceeds 95%, the new FHA MIP rate is 85 basis points (0.85%) annually -- a drop of one-half percentage point.

For 30-year FHA mortgages where the downpayment is five percent or more; and, for FHA refinances where the loan-to-value is 95% or less, the new FHA MIP rate is 80 basis points (0.80%) annually -- also a drop of one-half percentage point.

FHA MIP rates for borrowers using a 15-year loan remain unchanged.

15-year FHA loans of with a loan-to-value of 90% or less are required to pay 45 basis points (0.45%) annually. 15-year loans with a loan-to-value exceeding 90% pay 70 basis points (0.70%).

All loans exceeding $625,000 pay an additional 25 basis points (0.25%) in FHA MIP.

In order to qualify for the new, lower FHA MIP, your loan must have an FHA Case Number issued on, or after, January 26, 2015. FHA Case Numbers can be requested by your loan officer, so just ask.

Existing FHA loans are not eligible for the new MIP. Only new loans are eligible. As an existing FHA homeowner, consider the FHA Streamline Refinance as the simplest way to qualify.

According to FHA guidelines, the FHA Streamline Refinance waives verification of income and employment; does not require a home appraisal; and, credit scores are not required.

Many FHA Streamline Refinance loans close in 25 days or fewer.

How Much Will You Save With New FHA MIP?

FHA-backed homeowners will save thousands of dollars over the life of their loans via the FHA's new mortgage insurance premium policy.

Assuming a 30-year fixed rate mortgage, for every $100,000, a homeowner's saving total $42 monthly -- roughly $500 per year.

Homeowners borrowing at the $625,500 limit of high-cost areas including Orange County, California; Washington D.C.; and New York City, therefore, save more than three thousand dollars annually.

The reduction in FHA MIP is expected to help hundreds of thousands of homeowners save money, which can be used for day-to-day living, for retirement savings, or for college costs, as a few examples.

The chart below shows the savings FHA borrowers will realize under the new program.

Homeowner Savings Under The 2015 FHA MIP Program
FHA Loan Size Monthly Savings Annual Savings
$100,000 $42 $500
$150,000 $63 $750
$200,000 $84 $1,000
$250,000 $104 $1,250
$300,000 $125 $1,500
$350,000 $146 $1,750
$400,000 $168 $2,000
$450,000 $188 $2,250
$500,000 $208 $2,500
$550,000 $229 $2,750
$600,000 $250 $3,000
$625,500 $261 $3,138
$729,750 $304 $3,649

Note that FHA MIP remains constant for the life of your loan. Therefore, if you plan to keep your mortgage for a period of seven years and your loan size is $300,000, the FHA's new mortgage insurance premium policy will save you $10,500 as compared to the former policy.

FHA loans can be refinanced at any time.

Get A Complimentary FHA Rate Quote

The FHA has lowered its FHA MIP, but for new loans only. In order to take advantage of the new, lower premiums on an existing FHA loan, request a refinance to today's low rates.

Get a complimentary FHA rate quote now. Rates are available at no cost, with no obligation to proceed, and with no social security number required to get started.

Click to see today's rates (May 30th, 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)