FHA MORTGAGE INSURANCE
Written By: Stacey Sprain,
Certified Ambassador Loan Processor (CALP)
One of the most common questions I am asked about FHA lending is if monthly mortgage insurance is required for loans with less than 80% loan-to-value ratio. I am also commonly asked about the up front MIP and if it is required for all circumstances. Let’s take a look at FHA’s mortgage insurance.
FHA Mortgage Insuring Explained
The Federal Housing Administration aka: FHA is the single largest insurer of mortgages in the world. FHA insures mortgages made by FHA-approved lenders on single family homes (which include manufactured homes) and on multi-family homes (which include hospitals). Since FHA’s inception in 1934 it has insured over 34 million properties and has a current portfolio that includes over 4.8 million insured single family mortgages and over 13,000 insured multifamily projects.
FHA mortgage insurance protects lenders against losses that result from homeowners defaulting on their mortgages. Lenders who utilize FHA programs bear less risk because FHA will pay a claim to the lender in the event of a defaulted home loan. However, loans must meet certain requirements and criteria to qualify for the FHA loan program and its insurance.
A major fact of interest regarding FHA is that it is the only government agency that operates entirely from its own self-generated income- it costs taxpayers nothing. All mortgage insurance proceeds paid through borrower’s monthly mortgage payments are captured in an account that is used to operate FHA loan programs in their entirety. The Federal Housing Administration provides economic stimulation to the U.S. through its community development functions which create jobs for many persons employed in housing-related fields.
FHA Mortgage Insuring Rates & Limits
Currently FHA requires that an up front mortgage insurance premium fee of 1.5% of the base loan amount be charged to borrowers on FHA loans. This fee is referred to as up-front MIP. The up-front MIP may be paid in cash, paid by seller credit or may be financed by the borrower. In most cases, the MIP is financed by the borrower meaning that 1.5% of the base loan amount is added to conclude a total loan amount.
FHA also requires a monthly mortgage insurance payment based on a premium rate of .50% for 30 year mortgages and .25% for 15 year mortgages based off the total loan amount of the loan.
The only circumstance where a monthly mortgage insurance payment is not required would be in the case of a 15 year mortgage with a loan-to-value of less than 90%.
The following rules apply to the cancellation of FHA mortgage insurance:
On loans closed on or after January 1, 2001, FHA's annual mortgage insurance premium will automatically be canceled-once the unpaid principal balance, excluding the upfront premium, reaches 78% of the lower of the initial sales price or appraised value. The 78% is based on the initial amortization schedule, and does not take account of extra payments. This cancellation rule applies only to FHA's mainstream insurance program. It does not cover mortgages on condominiums or Section 203(k) rehabilitation loans, among others.
Borrowers who have made additional payments to principal must take the initiative, through their lender, to have the insurance terminated using the 78% rule.
The insurance must be in force for at least 5 years regardless of loan-to-value limitation.
Following is a standard chart of FHA mortgage insurance rates and requirements:
FHA up-front MIP and monthly mortgage insurance percentages for FHA home loans under the 203b program:
For 30 year loans originated after January 1, 2001
Upfront MIP LTV Monthly MI Minimum Term
1.50% 95.01-MAX MTG 0.50% 5 YRS
1.50% 90-95% 0.50% 5 YRS
1.50% 0-89.99% 0.50% 5 YRS
For 15 year loans originated after January 1, 2001
Upfront MIP LTV Monthly MI Minimum Term
1.50% 95.01-MAX MTG 0.25% 5 YRS
1.50% 90-95% 0.25% 5 YRS
1.50% 0-89.99% 0% 5 YRS
About the Writer. As one of NAMP's volunteer writers, Stacey Sprain is currently a NAMP member in good standing and is a NAMP Certified Ambassador Loan Processor (CALP). If you would like to become a volunteer writer for NAMP, please email us at: blog@mortgageprocessor.org.
posted by Editor in Chief at 11:31 AM
3 Comments:
I have been an underwriting for 20 years. I took the Capstone FHA UNDERWRITING COURSE. GOT MY Certicate of Completion. I was sending my my file to HUD when the Bsnk I was working for lost his licence. I don't know why. I was never told. There I never received my CHUM number. How can I receive my Chum number, if all the places in Long Island want you to have it before they hire you. Please help.
Anita0914b@yahoo.com
Hi Anita, i just read your question
(almost 3 months later) hope to be of help, if you found the answer already for others in your situation.
HUD does not control the CHUMS # assignment anymore, any HUD approved mortgagee can request and obtain a CHUMS number for an underwriter. if you have the FHA experience an a LENDER wants to hire you, they can request the CHUMS# for you online, FHA connection, and obtain the number inmediately. I got mine like that.
Good luck!
Today's Most Popular Fha Loans
What is fha loans with bad credit ?
Fha loans are the most popular consumer mortgage loans you can possibly have today.
Also fha bad credit loans are done by the government, basically the government have created these loans years ago and it was actually very popular.
Fha bad credit loans also called fha hud loans have their fha guidelines and fha requirement.
So for you to get a consumer mortgage and an fha approval you need to know the guidelines.
1.Fha fees- fha fees are not so much different than any other conventional mortgage loans you had in the past.
The problem is that some of us that apply to have a consumer mortgage are being charged high points in conventional mortgage loans.
If you will read the fha guidelines you will understand that with fha lending it's a much safer way to go because there are some restriction with the fha fees.
2.Fha appraisal- fha appraisal is also not so different from a normal appraisal you will have to get done in a conventional mortgage.
But here the appraiser that will appraise your home will have to be fha approved to get you an fha appraisal done.
3.Fha conventional- fha conventional is not a normal term but some people are using this term for some reason.
Fha conventional is not related to one another, fha is fha and conventional is conventional.
4.Fha lenders- there are not a lot of fha lenders and fha brokers.
A lot of people think that every mortgage broker can help them with their fha Home mortgage, no.
Only a few Mortgage brokers out there are really fha approved, so before you make a decision about the next mortgage broker you will use make sure they're approved.
5.Fha loan limits- the fha loan limits have changed recently. Until march of 2008 the fha limits were up to $417,000, because of states like California, New york and Florida the fha loan limits have changed to $729,000.
The new loan limits will help many homeowners to refinance their homes and avoid foreclosure.
6.Fha pmi- fha pmi is the mortgage insurance you required to pay.
Please read the fha requirements, in conventional loans you will pay pmi only if your loan is more than 80% ltv.
Since fha programs don't offer a second loan on your mortgage they will make you pay pmi instead, which is good because paying pmi is much better then a second loan.
7.Fha rates- fha rates are much better then conventional interest rates.
Conventional banks have a higher interest rates because they charge to the index of your loan a margin. Fha interest rates have no margin since the fha program is done by the government.
Fha rates are lower then conventional rate loans.
So again learn the fha guidelines and the fha requirements.
now you will know the fha loan limits.
1. you will probably have to pay fha pmi.
3. The fha rates shouldn't be higher then conventional rate loans.
Now go find fha lenders or an fha broker, get your refinance or mortgage done and save your home.
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