{"id":7628,"date":"2021-12-19T20:21:26","date_gmt":"2021-12-19T19:21:26","guid":{"rendered":"https:\/\/businessfinancenews.com\/?p=7628"},"modified":"2022-01-25T08:25:30","modified_gmt":"2022-01-25T07:25:30","slug":"fha-mortgage-insurance","status":"publish","type":"post","link":"https:\/\/businessfinancenews.com\/fha\/fha-mortgage-insurance\/","title":{"rendered":"FHA Mortgage Insurance"},"content":{"rendered":"\n
One of the benefits of current mortgage lending guidelines is the ability to buy a home with much less than a 20% down payment: this is made possible by mortgage insurance.<\/p>\n\n\n\n
The FHA loan program<\/a> allows FHA-approved lenders to make loans with more flexible minimum requirements, including down payments as low as 3.5%. Because the mortgage insurance<\/a> is backed by the U.S. government to protect lenders against losses from defaults, FHA mortgage insurance lenders can take more risks to help first-time homebuyers qualify for home loans.<\/p>\n\n\n\n We\u2019ll explain what FHA mortgage insurance is, as well as some pros and cons and comparisons to other types of mortgage insurance in this article.<\/p>\n\n\n\n Protection for lenders.<\/strong> Mortgage insurance is not the same as homeowners insurance, which protects you against losses such as fire or theft \u2014 mortgage insurance only protects lenders in the event that you default on your mortgage. It also allows you to buy a home with less than a 20% down payment, a fact that many homebuyers don\u2019t realize.<\/p>\n\n\n\n More than half the consumers who consider buying a home don\u2019t think they can come up with enough money for a down payment, according to a 2017 study by the Urban Institute. The good news is once they begin doing a little research, they find they can buy a home with as little as 3% for conventional loans, or 3.5% for FHA loans, because of mortgage insurance.<\/p>\n\n\n\n An added cost for borrowers.<\/strong> The cost of mortgage insurance varies based on the type of loan you apply for. With conventional loans, the cost is usually 0.15% to 1.95% of your loan amount, paid monthly. FHA loans require an upfront mortgage insurance premium (UFMIP) of 1.75%, and a monthly mortgage insurance premium (MIP) that ranges from .45% to 1.05% of your loan amount, paid monthly.<\/p>\n\n\n\n Mortgage insurance adds an extra expense to your monthly payment, and depending on what type of loan you are taking out, it may or may not be cancellable. There are two types of FHA mortgage insurance, and we\u2019ll explain those next.<\/p>\n\n\n\n When you take out an FHA loan, there are two types of mortgage insurance that you\u2019ll need to pay. One is called the upfront mortgage insurance premium (UFMIP) and the other is the annual mortgage insurance premium (MIP).<\/p>\n\n\n\n The UFMIP is paid in a lump sum equal to 1.75% of your loan amount. It can be paid out of your pocket or by the seller, but is usually financed on top of your loan amount. Below is an example of how it would be charged.<\/p>\n\n\n\n If you borrow $200,000 at a 3.75% rate and add the cost of upfront mortgage insurance to your loan, your total loan amount will be $203,500. That\u2019s important to understand, because it means your monthly payment will be slightly higher for as long as you have your loan.<\/p>\n\n\n\n Let\u2019s look at how that impacts your monthly payment as well. Without the cost of mortgage insurance, your monthly payment would be $926.63 \u2014 with it, you\u2019d add $15.81 to your monthly bill, bringing the payment $942.44. You can use this FHA mortgage calculator to figure out how much your mortgage insurance will be.<\/p>\n\n\n\n You can get a refund on a portion of the premium if you refinance to another FHA loan within seven years of taking out your mortgage, but you\u2019ll have to pay a new premium to complete the refinance. This takes some of the pain out of being charged the UFMIP everytime you refinance to a new FHA loan.<\/p>\n\n\n\n The other type of mortgage insurance required on an FHA loan is called the mortgage insurance premium (MIP). The MIP is an annual charge, but is paid monthly as part of your total mortgage payment; the exact amount depends on your down payment.<\/p>\n\n\n\n To calculate the MIP on the example above with a minimum 3.5% down payment, you would multiply the $203,500 loan amount by a factor of 0.85% and divide it by 12. The result is $144.14 per month added to the $942.43, for a total principal interest, and mortgage insurance payment of $1086.59.<\/p>\n\n\n\n The chart below shows the current MIP rates based on loan term, loan amount and down payment.<\/p>\n\n\n\nWhat is mortgage insurance?<\/strong><\/h2>\n\n\n\n
What is FHA mortgage insurance?<\/strong><\/h2>\n\n\n\n
Upfront mortgage insurance premium<\/h3>\n\n\n\n
Mortgage insurance premium<\/h3>\n\n\n\n