FHA Loans – Mortgage Insurance
FHA does not fund home loans directly; rather, it provides a guarantee to the mortgage lender against default.Â There are two separate fees that HUD collects to provide a level of guarantee coverage to the lender:
- Up-front mortgage insurance premiums (UFMIP).
- Monthly renewal mortgage insurance (Monthly MI).
The up-front mortgage insurance premium, if required, will be 2.25% of the base loan amount. This can be added directly on top of the base loan amount to determine the total loan amount, regardless of initial loan amount or appraised value. MI can always be added to the maximum base mortgage amount.
Monthly mortgage insurance premiums for home loans closed after January 1, 2001, are refundable through the 5th year of the loan based on certain percentage increments. For example, if a borrower sells or refinances after having the property or the loan for 36 months, the borrower is entitled to a partial refund of the original FHA up-front mortgage insurance premiums.
The annual renewal premium, also referred to as the mutual mortgage insurance premium in the HUD mortgage insurance premium policy, is 0.55% per year divided by 12. This is included in the borrowerâ€™s monthly payment.
Some loans have annual premiums that are different from the standard 0.55%.Â If you put down 5% or more then the monthly mortgage insurance factor is 0.5%. A 15-Year or shorter note has less than 90% LTV at its onset with no monthly mortgage insurance premium fee.
The HUD annual renewal premium MI will remain on the loan for five years or until the loan has reached 78% LTV, per the original purchase price or appraised value.Â The borrower will pay the monthly mortgage insurance for up to five years regardless of their initial LTV, unless they refinance or sell that loan in less than five years.
302-703-0727 DE Office / 610-906-3109 PA Office / 410-412-3319 MD Office
42 Reads Way, New Castle, DE 19720