FHA Mortgage Insurance Premiums
FHA MIP is not that much different than conventional Private Mortgage Insurance (PMI).
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The FHA Mortgage Insurance Premiums, mostly commonly referred to as MIP, are charged by HUD to protect investors against default. Using these premiums paid into a fund, HUD Guarantees the performance of every FHA loan and protects a percentage of the lender's investment. In return, this mandatory premium enables borrowers who might not otherwise fit within Freddie/Fannie conventional guidelines, to receive funding for the purpose of buying a home or refinancing at conventional mortgage rates.
The net affect of the premiums on your loan are not that much different than the more traditional PMI premiums charged on a conventional mortgage. If you compare them, you'll find that the monthly MIP payment with the FHA mortgage is typically less than half the cost of PMI. What many borrowers are usually concerned with is the upfront MIP which is added into the loan at financing.
Every HUD loan is subject to the upfront MIP premium. The upfront mortgage insurance premium rate for purchase, refi, and cash out is 1.75% of the loan amount. Streamline refinance loans are subject to 1.50% upfront MIP.
All programs but the 15 year loan (see below), are subject to .25% to .55% annual premium paid monthly for a mandatory minimum of 5 years. After 5 years, if the LTV is less than 78%, the monthly premiums will no longer apply.
15 year loans are not subject to monthly MIP premiums if the loan-to-value ratio is less than 90%. Otherwise, MIP payments are required until the LTV is less than 78%.
If refinancing an existing FHA mortgage that is not a streamline refi, the upfront MIP will be pro-rated and credited at close towards your new MIP upfront fee -- based upon the number of years you have paid on your loan up to 5 years. Monthly MIP still applies, based upon the above criteria.