ThereÂ are many changes going on with FHA mortgages which are being implemented in order to improve the financial future of the Federal Housing Administration. Recently, FHA raised the annual mortgage insurance premium again which has made it a little bit more expensive to have anÂ FHA loan. Now, the new FHA mortgage insurance premium cancellation policy is also about to change.
In the past, borrowers with FHA 30 year loans paid MIP as long as the LTV was greater than 78%. There was also a minimum payment period of 5 years (60 months). For 15 year loans, FHA required that the MIP be paid until the loan reached 78% LTV, but there was no minimum 5 year requirement.
Effective June 3, 2013, the annual mortgage insurance premium for FHA mortgages will no longer be based on a loan to value criteria of 78%. Cancellation of FHA MIP will be eliminated for loans that have a beginning LTV of 90% or more. For these loans, MIP must be paid for the entire term of the loan, in other words, forever. For loans that have a beginning LTV of 90% or less, the annual mortgage insurance premium will be required for 11 years.
This means that homeowners using an FHA mortgage for financing beginning June 3 will need a 10% or more down payment in order to cancel FHA MIP. Otherwise, MIP will no longer allowed to be canceled. The only way to cancel the mortgage insurance premium will be through aÂ refinanceÂ to a conventional mortgage when the loan to value reaches 78%.
In order to receive an FHA loan under the old rules, borrowers must obtain an FHA case number prior to June 3, 2013. Even if closing after June 3rd, having a valid FHA case number that was obtained prior to this date will protect the borrower against these changes.
FreeRateUpdate.com researches and reports advertised rates of active lenders within the FreeRateUpdate.com network.