What is FHA Mortgage Insurance
What is FHA Mortgage Insurance?
FHA mortgage insurance is an insurance policy administered by the Federal Housing Administration that protects the mortgage lender if the FHA loan defaults or creates a loss of money to the lender.
This insurance is only for FHA loans, and is not applicable other loan programs like Conventional, Jumbo, VA and USDA loans.
This (MIP) FHA mortgage insurance premium is a cost that the borrower will pay to obtain financing using an FHA mortgage loan program.
If you have or are considering an FHA loan program, then understanding what FHA mortgage insurance is and how much it cost will help you.
How does FHA Mortgage Insurance Work?
FHA mortgage insurance is a policy that will protect the lender in case the borrower defaults on the mortgage. If the borrower defaults on the loan, and the mortgage lender incurs a financial loss the lender can file a claim to recover their losses.
FHA will then pay the lender for the losses incurred as a result of the mortgage default.
Who pays for the FHA Mortgage Insurance on each loan?
The borrowers are responsible for the cost of the mortgage insurance. However, because these mortgage loans are insured by the Federal Government, the cost are offset by the lower interest rates these programs provide.
How much does this FHA mortgage insurance cost?
FHA mortgage insurance premium consist of two charges that borrowers will pay for using all FHA loan programs. First, there is a one time per loan Up-Front Mortgage Insurance Premium of 1.75% of the loan amount.
Second, there is a monthly mortgage insurance premium that will be included in your monthly payment. The amount of the monthly insurance premium will be based upon the loan term (30 years, 20 years, or 15 years) and the loan to value determined by the down payment or equity in your home.
How to calculate the cost of FHA mortgage insurance?
The cost of FHA mortgage insurance is completed in two steps. First, we will calculate FHA's one time per loan Upfront Mortgage Insurance. Second we will calculate the FHA monthly mortgage insurance that will be included into the monthly payment of the new mortgage home loan.
Calculating the Upfront Mortgage Insurance Premium
As an example, if your FHA loan amount is $200,000, then $200,000 times 1.75% FHA upfront mortgage insurance premium would be $3,500. This fee can be paid at closing or included into your loan amount. If you elect to include the FHA upfront mortgage insurance into your loan amount, then your final loan amount will be $203,500.
Calculating the Annual Mortgage Insurance Premium (MIP)
The annual mortgage insurance premium (MIP) is an ongoing fee that is paid in monthly installments over the life of the loan. The amount of the annual MIP depends on several factors, including the loan amount, the loan term, and the loan-to-value (LTV) ratio. FHA Mortgage Insurance Chart
The LTV ratio is the amount of the loan compared to the value of the property. For example, if you buy a home for $200,000 and take out an FHA loan for $180,000, your LTV ratio would be 90%. The higher your LTV ratio, the higher your annual MIP will be.
The amount of the annual MIP is calculated as a percentage of the loan amount, and it is divided into 12 monthly payments. The percentage depends on the LTV ratio and the length of the loan term.
For example, if you take out an FHA loan with a 30-year term and an LTV ratio of 95% or higher, your annual MIP would be 0.50% of the loan amount. If you take out an FHA loan with a 15-year term and an LTV ratio of 90% or lower, your annual MIP would be 0.40% of the loan amount.
Here is an example of how to calculate FHA annual mortgage insurance for $200,00 loan for 30 years and loan to value of 95%.
Annual mortgage insurance premium (MIP): $200,000 times .50% = $1,000 per year, or $83.33 per month.
When can I remove FHA Monthly Mortgage Insurance Premium (MIP)?
FHA's monthly mortgage insurance will stay on your mortgage loan based upon a few conditions determined at the time you originated your mortgage loan. FHA determines the duration of the annual mortgage insurance premium by considering if your loan amount is less than or more than $726,200, term of loan, and loan to value.
FHA annual mortgage insurance termination chart
| Term of Loan | Loan To Value | Duration |
| 30 Years | Greater than 90% LTV | 30 Years |
| 30 Years | Less than 90% LTV | 11 Years |
| 15 Years | Greater than 90% LTV | 15 Years |
| 15 Years | Less than 90% LTV | 11 Years |
How to remove FHA Mortgage Insurance?
The only options available to remove FHA mortgage insurance is to wait for the duration requirements defined by FHA at the time your loan was originated or refinance into a conventional mortgage loan. FHA mortgage loans annual mortgage insurance premium do not consider the principal balance of your loan to remove annual mortgage insurance.
Can I lower my FHA Mortgage Insurance using an FHA Streamline Refinance?
Yes you can use the FHA Streamline refinance to lower the cost of the annual mortgage insurance premium if the annual premium rate has been reduced compared to the rate you are paying. FHA Streamline will also allow you to lower your mortgage interest rate, if at that time interest rates are lower than your current mortgage rate you have now.
