FHA mortgage insurance explained

When you get an FHA home loan, you must pay for FHA mortgage insurance. This is true whether you’re buying or refinancing, getting a 203(k) or Title 1 home improvement loan, or a senior applying for a reverse mortgage. mortgage insurance fees are always part of the package.

fha mortgage insurance premiums do two things. First, they protect FHA and your lender against the possibility that you will default on your loan. Second, they provide the funds for FHA to operate its loan program; Although the FHA is a federal agency, its mortgage loan program is strictly self-financing.

Reading: What is fha mortgage insurance

for home purchase and refinance loans

In a standard fha 203(b) loan used to buy or refinance a home, you pay two types of mortgage insurance: an up-front mortgage insurance premium (mip) that is paid at closing and an annual premium that is divided in 12 parts and is billed as part of your monthly mortgage statement.

The same premiums and rates are charged on an fha 203(k) home improvement loan, which must be part of the purchase or refinancing of a home.

The rate for the initial fha mip is 1.75 percent of the loan amount. this can be paid for separately, financed as part of the loan itself, or paid for by your lender in exchange for a higher mortgage rate.

annual premium replaces the private mortgage insurance (pmi) you must have on conventional mortgages with less than 20 percent down. Depending on your circumstances, the annual FHA premium may cost more or less than the PMI on a comparable loan.

annual fha mortgage insurance rates are based primarily on the down payment and length of the loan. Most fha borrowers will pay an annual premium of 0.85 percent, assuming a 30-year mortgage with a 3.5 percent down payment.

fha mortgage insurance rates

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annual rates for fha mortgage insurance are as follows:

• 0.85 percent on loans over 15 years with a down payment of less than 5 percent

• 0.80 percent on loans over 15 years with a down payment of 5 percent or more

• 0.70 percent on loans 15 years or less with a down payment of less than 10 percent

• 0.45 percent on loans 15 years or less with a down payment of 10 percent or more

Different rates apply to fha jumbo loans, those over $625,500. FHA loans of that size are only approved for multi-unit homes or single-family properties in Alaska, Hawaii, Guam, or the Virgin Islands. for loans greater than $625,500:

• 1.05 percent on loans over 15 years with a down payment of less than 5 percent

• 1.00 percent on loans over 15 years with a down payment of 5 percent or more

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• 0.95 percent on loans 15 years or less with a down payment of less than 10 percent

• 0.70 percent on loans 15 years or less with a down payment of at least 10 percent but less than 22 percent

• 0.45 percent on loans 15 years or less with a down payment of 22 percent or more

Borrowers paying less than 10 percent must have FHA mortgage insurance for the life of the loan; those who put in 10 percent or more can cancel it after 11 years. You can also pay it off by refinancing to a conventional mortgage once you reach 20 percent of home equity.

Note that when you refinance, home equity takes the place of a down payment.

other situations

Special rules apply when refinancing an FHA mortgage completed on or before May 31, 2009. For those loans, the initial premium is only 0.01 percent of the loan amount and the annual premium is 0.55 percent.

fha title 1 loans charge a 1 percent annual mortgage insurance premium, although this can sometimes be paid for through a higher interest rate rather than a separate fee.

In an fha reverse mortgage, there is an initial mip of 0.50 percent or 2.50 percent charged at closing; the higher amount is only charged if you withdraw more than 60 percent of available funds in the first year. The annual mip is 1.25 percent of the outstanding balance, which grows each year, but does not have to be paid until the home is vacated.

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