Bruce, Home Buyer in Woodland Hills, CA

FHA loan with 3% down payment. So why do will still need to come up with a PMI (20% down payment)?

Asked by Bruce, Woodland Hills, CA Thu Jul 31, 2008

Can you please explain to me how a FHA loan works? I though with a FHA loan you need just to come up with 3% down payment instead of the 20%.

Thank you
Bruce

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It looks like you are asking if PMI means 20% down. PMI is private mortgage insurance which conventional lenders charge for loans with less than 20% down. FHA has mnortgage insurance as well which is called MIP (mortgage insurance premium). The FHA down payment has been raised to 3.5% and the MIP remains on the loan until you have paid the principal below 80% of the original purchase price. In a conventional loan the PMI can be removed when the property appraises (by a lender approved appraiser) for 20% more than purchase price.
2 votes Thank Flag Link Sat Aug 2, 2008
In January 2009, the minimum down payment for an FHA mortgage was changed from 3 percent to 3.5 percent. In early 2010, an added level of down payment requirement was established for prospective buyers with low credit scores. An FHA mortgage for a borrower with a credit score of less than 580 requires a 10 percent down payment. http://www.hud.gov/

For More Details Chick Here: http://fhamortgageinfo.com/
1 vote Thank Flag Link Thu Jul 23, 2015
Dan is right, MIP can be removed after five years but the LTV has to be 78%. Thanks for clarifying this.
Web Reference: http://www.leaveittobee.com
1 vote Thank Flag Link Mon Aug 11, 2008
From what I understand about an FHA loan (btw, FHA loans are government insured loans as opposed to a conventional loan) is that the MIP will stay with the life of the loan even after you pay down your loan amount, which is why one might choose a conventional loan over an FHA. However, FHA loans have recently held lower interest rates than conventional loans and now that conventional loans are requiring more money down, many buyers have been going the FHA route. FHA loans have also loosened a lot of the requirements that they used to carry with them (which is one of the reasons many people avoided having to go the FHA route in the past). FHA also offers a universal rate regardless of your credit score, so traditonally credit challenged people used FHA (although they do scrutinize your debt-to-income ratio). However, FHA is changing the way an MIP is determined (traditionally, it was 1.5% for all buyers) and if you do have a higher credit score, your MIP will be lower than 1.5% and so forth. However, with all the changes in the industry, FHA is being examined and there may be changes in October 2008 like Sue mentioned. There is a lot of talk about taking away the seller down payment assistance program (which allows you to close without putting money down).

Also, FHA will not insure all property, so if you are going the FHA route, make sure that the property is insurable through FHA (most of the time it is new construction or pre-construction property that is not insurable, therefore you cannot use FHA for these properties).

If you have any further questions about FHA loans, contact Shannon Bagshaw with Chase Mortgage; she can answer all your questions. She, in fact, just closed an FHA loan for my buyer on Friday. I have also had three other buyers this year that have used FHA and believe that it will continue to be a popular loan for buyers.

Shannon's info: 404-444-9553 or shannon.l.bagshaw@chase.com. She is very responsive to email so you may try doing that first.
Web Reference: http://www.leaveittobee.com
1 vote Thank Flag Link Tue Aug 5, 2008
You only need 3% down with an FHA loan. The State of Georgia and Tennesse also offer assistance programs for qualified buyers that will pay your down payment for you, up to $20,000 on an intererst free 2nd mortgage for one.

Julie Oliver
Mortgage Investors Group
423 285-0516
Web Reference: http://migonline.com
1 vote Thank Flag Link Thu Jul 31, 2008
Your Federal tax dollars at work!

Ed Francell
Prudential Georgia Realty
1 vote Thank Flag Link Thu Jul 31, 2008
PMI is Private Mortgage Insurance (not a 2nd mortgage). Whenever you borrow more than 80% of the value of the property (called loan to value) the lender will require that an outside company insures the additional amount incase of default. PMI usually runs between $200 and $400. For a more detailed explanation talk to your mortgage broker or banker.

Hope this helps,
Jolie Abreu
Keller Williams Realty Consultants
Web Reference: http://www.helpinghomes.net
1 vote Thank Flag Link Thu Jul 31, 2008
While FHA loans only require 3% down, MIP (mortgage insurance premium) is added on up front due to the low amount of cash in from the borrowers. This amount may be financed on top of the base loan amount. However, an annual MIP will also be charged until the property has reached 78% LTV or less and a minimum of 5 years has transpired. Essentially any transaction exceeding 80% LTV whether FHA or Fannie/Freddie conforming will require mortgage insurance of some kind. Some standard conforming lenders offer tax advantaged PMI which means that they give you a higher interest rate ( which is tax deductible) as opposed to PMI premiums. In any case, preserving 17% of a cash down payment amount more than compensates for the PMI over time.

Wyatt Earp
Senior Loan Consultant
Platinum Capital Group
310.445.9300
0 votes Thank Flag Link Wed Sep 9, 2009
Once you reach the 80% loan to value, you can request that the lender remove the PMI. They will then do an appraisal to determine the value. If it meets the 20% equity minimum, then they will remove the PMI. This is dependant on your mortgage payment history. If you have any late payments at all, they may not consider it.

Once your loan to original value has reached 70% by making regular payments, the PMI should automatically drop off. Take a look at the amortization schedule. For a $300,000 30 year fixed rate loan at 6%, it would normallty take you almost 15 years to reach that level. But, it you consider a mortgage accelerator, you could cut that time in 1/2 or even less.

Jolie Abreu
Keller Williams Realty Consultatns
(678) 894-4409
0 votes Thank Flag Link Thu Aug 7, 2008
you have to keep the MIP for 5 years even if you arrive at 80 percent ltv before that period.
Web Reference: http://www.ericpstark.com
0 votes Thank Flag Link Thu Aug 7, 2008
FHA has begun to price interest rates and discount points with credit scores, just like conventional lenders. Also the idea that the MIP stays forever is not correct. When you pay your principle down to 80% of purchase price the MIP can be removed on a FHA loan.
0 votes Thank Flag Link Wed Aug 6, 2008
FHA requires 3% down payment and up front fee of 1.5 to 2.25% of the loan amount whcih can be added to your mortgage amount.. The MIP is in effect until you have pay your principal down to 78% to 80% of the original loan amount(A lender that specialize in FHA loan will be answer these question better).
The PMI is for conventional loan that has greater than 80% LTV.
BTW, all this might change come Oct 1, 2008. Stay tuned.
0 votes Thank Flag Link Fri Aug 1, 2008
HI Bruce-

The reason you still have to have PMI (Private Mortgage Insurance) on an FHA loan where you've put down 3% is because it is considered a higher risk loan. Basically, any loan where the buyer has put down less than 20% will have PMI. The amount is added to you monthly payment, not typically a lump sum amount that you have to come up with at the closing. After you have owned the home for some time, and you gain more equity, you can have an appraisal and request for the PMI to be removed...You have to build up 20% equity in the home.

Again, you will want to seek the advice of a Mortgage professional. You may want to try Coldwell Banker Home Loans 1-888-240-6986.
0 votes Thank Flag Link Thu Jul 31, 2008
the answer to all your questions:
Doni Arrington
Mortgage Loan Officer
Suntrust 678-794-0512
0 votes Thank Flag Link Thu Jul 31, 2008
Here's someone who knows the ins and outs, call Chad Farmer 404-542-8912
0 votes Thank Flag Link Thu Jul 31, 2008
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