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Find out about how to qualify for the lowest FHA mortgage insurance premium possible.
Home Refinance Mortgage loans will require mortgage insurance when the loan-to-value of your loan is higher than 80% of the value of your home. For conventional loans, mortgage insurance is provided by private companies. Over the past year, the cost of private mortgage insurance for Fannie Mae and Freddie Mac loans has skyrocketed, while FHA mortgage insurance costs have actually been reduced.
How Much Does FHA Mortgage Insurance Cost?
FHA mortgage insurance premiums used to require a 3% up front premium added on to the total refinanced loan amount combined with monthly payments equal to about one half percent of the loan amount. The Housing and Economic Recovery Act of 2008 reduced the up-front FHA mortgage insurance premium from 3% down to 1.75%. While this reduction was supposed to expire September 30, 2009, FHA have decided to extend the time period for this reduced premium.
The up-front mortgage insurance premium is actually added on to your loan amount after calculating your maximum loan to value. For example, If you purchase a home for $100,000, FHA requires a down payment of 3.5% or in this case $3,500. The up-front mortgage insurance premium of 1.75%, of the loan amount, or $1,689, would be added to your loan amount. So at closing, you would actually be borrowing $96,500 + $1,689, or $98,189.
The annual mortgage insurance premium would then be .55 percent of the loan amount per year, or $45.01 per month. This annual payment is not for the entire 30 years of the
Lower FHA Premiums for FHA Streamline Refinances If you have an existing FHA mortgage loan, you are refinancing into a new FHA mortgage and you meet certain criteria, you may qualify for the FHA Streamline Refinance Program. The up-front mortgage insurance premium for FHA streamline refinances is only 1.5%, one quarter percent less than for regular FHA refinance loans.
How Long is FHA Mortgage Insurance Required?
FHA mortgage insurance is not required for the entire 30 year term of your refinance loan. FHA mortgage insurance is required for a minimum of five years from the start of the loan. Once five years have passed, mortgage insurance will be eliminated when the loan amount has been reduced to less than 78% of the current value of your home. After the five year period, it is important for refinancing home owners to pay attention to their loan amount and the current value of their home. Mortgage insurance may be eliminated after the five year period either due to paying down the loan with regular principal and interest payments, by an increase in the value of your home, or both. Also, it is up to home owners to contact their loan servicer to request that mortgage insurance be removed.
Risk-Based Premiums Delayed
FHA was going to implement risk-based premiums last fall, but that program is on hold. The risk-based premium program would have charged different FHA up-front mortgage insurance premiums to refinancing home owners based on their credit scores and loan-to-value ratios. However, this program is on hold until further notice.
By Total Mortgage Services Mortgage and Lending with Total Mortgage Services
Posted on June 01, 2010 11:13 AM