Definition: FHA MIP FHA = Federal Housing Administration MIP = Mortgage Insurance Premium
The FHA is overseen by the U.S. Department of Housing and Urban Development [HUD]
The FHA was established in 1934 by Congress to promote the sale of homes to citizens.
Over time much has changed but the core premise remains the same. FHA does not lend mortgage money but guarantees a portion of the loans that lenders originate under the FHA guidelines.
Typically individuals can achieve a mortgage with smaller down payments, good interest rates with less than stellar credit scores. The illustrations below reflect the new changes as of June 2013.
An example would be a home purchase with only a 3.5% down payment. FHA is able to guarantee the portion of the loan that is above 78% of the “Loan to Value” [LTV] to the original mortgage amount by charging a “Premium’ to the borrower.
There are two premiums the borrower will have to pay. First, at settlement, there will be one time “Upfront Mortgage Insurance Premium’ [UFMIP] that will be added to the principal loan amount, Secondly there will be a continuing annual premium that will divided in 12 equal monthly payments added to the mortgage payment and distributed to FHA thru the lender. Both premiums will be deposited into the FHA’s
” Mutual Mortgage Insurance” fund to pay claims incurred by defaulted borrowers that result in foreclosure losses.
“How much will this cost?” is the most common question.
Here is an example of a home purchase transaction:
|Down Payment of 3.5%||7,000|
|Principal loan amount||193,000|
|Add to this the Upfront MIP @ 1.75%||3,378|
|Total Loan amount||196,378|
Second part will be the recurring “Mortgage Insurance Premium” [MIP] Assuming this is 30 year mortgage and the “Loan to Value” is over 95% the current rate is 1.35% per year or 2651.10 divided by 12 equal monthly amounts of 220.93 to be added to the mortgage payment.
For the most part the FHA insures loans up to 625,000 and up to 729,750 in high-cost areas.
The second most asked question is at what point can the “MIP” go away. The simple answer is the new regulations require the MIP to be in place for 11 years if the original loan amount was greater than 78% LTV but less than 90% LTV and the value after 11 years is less than 78% LTV. If the original loan amount was greater than 90% LTV the MIP will not go away until the loan is paid off.This applies to 15 and 30 year mortgages.
There are very few exceptions to the above stated examples.