Mortgage insurance (MI) is a protection that guards lenders in case of applicant default. Not all home loans require mortgage insurance though. As a rule of thumb, it’s usually required for mortgages with a down payment of 20 percent or less. FHA MI is required for all FHA loan programs including purchase loans, refinance loans and streamline refinance loans. FHA sets the guidelines for it’s insurance programs, and that’s what lenders use to determine if applicants are eligible for a loan. These requirements are usually less demanding than other, non-insured mortgage programs.
What is FHA Mortgage Insurance?
Anyone considering an FHA loan should understand what mortgage insurance does for both the lender and the borrower. The FHA mortgage insurance premium protects the lenders if the borrower misses their obligation, and provides loan applicants with imperfect credit ratings access to home loan programs they wouldn’t otherwise have. If a foreclosure occurs with an insured mortgage, the lenders receive their investments back. All high-LTV, low down payment FHA insured loan programs are insured against the possibility of a borrower default. Mortgage insurance rates may vary depending on the loan program, loan amount, and loan-to-value (LTV) ratio. The FHA MIP rates for streamline refinance loans are generally less than purchase loans, cash-out or rate-term refinances. In addition to MI, other fees may apply for FHA loans.
1. Upfront FHA Mortgage Insurance Fee
The Up Front Mortgage Insurance Premium or UFMIP is a fee charged to borrowers at closing for all purchase loans or cash-out and rate-term (non-streamline) refinance loans. For purchases and non-streamline refi’s, the FHA Up Front MIP amounts to 1.75% total loan amount, which is added to the mortgage balance.
Up Front Mortgage Insurance Premium (UFMIP)
- Purchase Loans, Cash-Out or Rate-Term Refinance
- FHA Streamline Refinance
- Original mortgage endorsed before 6-1-2009 – 0.01%
- Original mortgage endorsed after 6-1-2009 – 1.75%
Here is an example of an FHA MIP calculation:
- Proposed FHA loan amount = $100,000
- UFMIP 1.75% of $100,000 = $1,750
- New total loan loan amount = $101,750
There’s an exception that exists for the FHA Upfront MIP on Streamline Refinance loans, depending on when the original FHA mortgage was endorsed. If the original mortgage was endorsed before 6-1-2009, the UFMIP is just 0.01% of the total loan amount. If the original mortgage was endorsed after 6-1-2009, the Upfront FHA MIP rates are the same as other FHA programs at 1.75% of the total loan amount.
2. Annual FHA Mortgage Insurance Fee
The second mortgage insurance fee for FHA loans is the Annual Mortgage Insurance Premium (MIP). This is also known as FHA monthly mortgage insurance, because it’s actually charged with your monthly payment.
To calculate what the annual MIP will be, the length of the loan, the loan-to-value ratio and the total loan amount are all factored. Once that’s determined, the Annual MIP can be charged as a set percentage of the FHA mortgage amount, which is then divided into 12 payments and charged each month.
Annual Mortgage Insurance Premium (MIP)
- Annual MIP Rates for FHA Purchase Loan, Cash-Out Refinance and Rate-Term Refinance – Based on term length and loan-to value factors
- 30 year mortgage less than $625,500, LTV > than 95%: .85% annually
- 30 year mortgage less than $625,500, LTV ≤ 95%: .8% annually
- 30 year jumbo mortgage more than $625,500, LTV > than 95%: 1.05% annually
- 30 year jumbo mortgage more than $625,500, LTV ≤ 95%: 1% annually
- 15 year mortgage less than $625,500, LTV > than 90%: 0.70% annually
- 15 year mortgage less than $625,500, LTV ≤ to 90%: 0.45% annually
- 15 year jumbo mortgage more than $625,500 with LTV > than 90%: 0.95% annually
- 15 year jumbo mortgage more than $625,500 with LTV ≤ 90%: 0.70% annually
- 15 year jumbo mortgage more than $625,500 with LTV ≤ 78%: 0.45% annually
- FHA Streamline Refinance Annual MIP Rates – Based on length of loan, loan-to-value ratio and the date the original FHA mortgage was endorsed.
- Original FHA loan endorsed before 6-1-2009: 0.55% percent annually
- Original FHA loan endorsed after 6-1-2009
- 30 year refinance, LTV > 95%: 1.35 percent annually
- 30 year refinance with LTV ≤ 95%: 1.30 percent annually
- 15 year refinance, LTV > 90%: 0.70 percent annually
- 15 year refinance, LTV ≤ 90%: 0.45 percent annually
- Annual MIP Cancellation Point (loans after June 3, 2013)
- LTV > 90% – Annual MIP is collected for the entire life of the mortgage.
- LTV ≤ 90% – Annual MIP is automatically cancelled after 11 years.
- Annual MIP Cancellation Point (loans before June 3, 2013)
- 30-Year Mortgage – Annual MIP is cancelled automatically when mortgage principal is paid down to 78% if it’s been paid for at least 60 months.
- 15-Year Mortgage – Annual MIP is cancelled automatically once mortgage principal is paid down to 78%.
Can You Cancel Your FHA Mortgage Insurance?
While there’s many variables in FHA mortgage insurance rates, there are options to decrease it or get rid of it if you choose.
The FHA Streamline Refinance is a perfect options for FHA borrowers to simultaneously lower their mortgage rates and mortgage insurance premiums too.
A conventional refinance is also an option for FHA mortgage insurance removal, and it may be possible to lower your interest rate too.
There’s also been talk lately of FHA allowing borrowers to get discounted mortgage insurance rates for completing the new “Homeowners Armed With Knowledge” or HAWK counseling program.
FHA Mortgage Insurance Refunds
If you’ve had an FHA loan that’s been paid off, you may be eligible for a refund. If you’ve observed any other aspects of FHA mortgage insurance, wouldn’t it be unusual if the FHA refund requirements were consistent?
To be eligible for an FHA MIP refund, the borrower can’t have late payments or default. If a loan was originated after December 8th, 2004, an FHA mortgage insurance refund is only due if the borrower refinanced into another FHA loan (Streamline) within the first three years. For loans originated between January 1st, 2001 and December 8th, 2004, the borrower may get an FHA Upfront MIP refund if the loan was paid off within the first five years. Additionally, loans originated between September 1, 1983 and January 1st, 2001, refund is only available if the loan was paid off within the first seven years. Mortgages originated before 9-1-83 aren’t eligible for a mortgage insurance refund. You can check here to see if you might be eligible for an FHA refund.
Are FHA Loans required to carry Mortgage Insurance?
By definition, mortgage insurance is a fee charged to the borrower that’s purpose is to compensate the lender in case of default. The Federal Housing Administration offers homeownership opportunity for millions of families by insuring the mortgage products it creates with the full faith and force of the U.S. Government.
The chance always exists that borrowers will default on their loans. The chance is even greater amongst the population to whom FHA-approved lenders currently offer loans. Generally, those who give a down payment on their houses of less than 20 percent are more likely to stop making their monthly mortgage payments; FHA-backed loans only require a 3.5 percent down payment. This is one of the reasons that FHA mortgage insurance is required of these borrowers.
What is LTV?
For insurance premium purposes and eligibility for FHA mortgage insurance, the LTV (loan-to-value ratio), computed to two decimals (e.g., 95.65), is calculated by dividing the mortgage amount prior to adding on any upfront mortgage insurance premium by the sales price or appraised value, whichever is less.
For refinance transactions, which often include closing costs in the loan amount, the LTV is determined by dividing the loan amount prior to adding on any upfront mortgage insurance premium by the appraiser’s estimate of value.
When does mortgage insurance end on FHA Loans?
The FHA mortgage insurance premium is not something you necessarily have to pay throughout the entire length of the loan. FHA borrowers are no longer be required to pay for MI when their loan-to-value amounts reach 78 percent if the length of the loan is 15 years or less. For loans longer than 30 years, borrowers may stop paying for mortgage insurance after five years; their loan-to-value ratios must also be equal to 78 percent.
Do FHA Loans Carry PMI?
Most mortgage programs require private mortgage insurance (PMI), when your down payment is less than 20 percent of the sales price. For Conventional Loans, ‘private’ mortgage insurance is provided by private companies. Consequently, FHA loans do not carry ‘private’ mortgage insurance because they’re insured by a government agency. FHA mortgage insurance is considered just plain old mortgage insurance, without the ‘P’.
FHA Mortgage Resources
- Calculate your FHA mortgage insurance fees
- Check your eligibility for an FHA Mortgage
- Today’s FHA Loan Requirements
- Learn FHA Refinance Requirements
- Check if you’re owed an FHA Mortgage Insurance Refund
- View FHA Loan Fees
- FHA Refinance Costs and Fees
- FHA Refinance Loan Programs
- What is FHA Streamline Refinance?
- Cash-Out FHA Refinance
- Current FHA Mortgage Limits
- FHA eases wait period after Bankruptcy and Foreclosure
- Ask a Question About FHA Mortgages
- View FHA Loan Limits
- Get an FHA Mortgage Rate Quote