FHA Mortgage Insurance raised (slightly)

Question: OMG! FHA is increasing the upfront mortgage insurance! What does that mean to our clients?

Answer: FHA is increasing the upfront mortgage insurance from 1.75% of the loan amount back to the original 2.25%. On a $200,000 loan amount a difference of……wait for it: five dollars a month. The upfront mortgage insurance was reduced two years ago and HUD is reinstating the premium. No need to get your knickers in a bunch.

The upfront mortgage insurance is refundable, on a sliding scale, if the home is sold; or refinanced out of an FHA loan into a conventional within the first five years. But the home owner is responsible for requesting the refund. FHA will not send it voluntarily.

FHA also has monthly insurance. Today, that rate is .55% of the loan amount divided by 12. That calculates to $91.67 per month on a $200,000 loan amount.

The monthly m.i. is non-negotiable. If your client is putting 20% down, FHA still wants their mortgage insurance. In today’s lending world it may make more sense to place a lower credit score borrower with a hefty down payment in an FHA loan than a conventional. They may not like paying the monthly m.i. but if they want to purchase a home that may be their only choice.

The monthly premium can only be removed if it is paid down. FHA mandates that you are required to have the monthly mortgage insurance for five years. After that time if you have PAID down the loan to less than 80% (78% to be exact) the mortgage insurance can be petitioned to be erased. Appraisals for removal of FHA mortgage insurance are non-existent. It is all about paying the loan down and keeping the mortgage insurance for at least 5 years.

FYI: FHA is fighting to keep the 3.5% down payment requirement. And rumor has it that the monthly mortgage insurance premium may be increased. Stay tuned.