Question on Mortgage Insurance and Upfront MIP on FHA

Asked by SanFran, Broomfield, CO Fri Feb 6, 2009

So I am reading confusing articles on these.
FHA needs 3.5% down. Then I have to pay 1.75% Upfront MIP = @$3K in my case. I know I can roll it into my Mortgage......... Then I have to pay Mortgage Insurance (roughly @$100/month in my case) every month.

I thought after building 22% equity in the house, I can escape the Mortgage Insurance almost like its a conventional 5% or 10% down loan. But one article says I will have to pay that MI for life of loan. Another says any unused portion of Upfront MIP gets refunded if the loan is kept for at least 5 of 30 years......
I am interested in finding out if there is a way I can save that $100 Mortgage Insurance after building 22% equity.

Btw, if there are any brokers answering this question, what is the lowest rate you people can provide with no YSP, 1 pt origination?

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Robert Spinosa’s answer
Robert Spino…, Mortgage Broker Or Lender, Mill Valley, CA
Fri Feb 6, 2009

That's not quite the way it works in a refi, but let me try to keep it simple. If you're in a situation where the FHA loan is going to be paid off, your lender will obtain a netting authorization. Here is a real-world example of how a netting auth would look (this was for a loan originated in 08/08):

New closing month: January 2009
Computed (UFMIP) premium: $3966.25
Period of insurance: 5
Old Term: 360
Orig. Mtg. Amt.: $321,266
Refund UFMIP Factor (%): .72000
UFMIP Earned by HUD: $1110.55
Unearned UFMIP: $2855.70
Original Property Value: $334,000

Now, if the new loan were to close in February, this borrower would get a smaller refund, as HUD would "earn" more of the premium.

So long story short, the UFMIP factors down as you hold the loan, thus if you refinance later rather than sooner, you recapture less of your initial investment.

Let me know if you have further questions, but truth be told, I'm sure there are real FHA experts out there, as I certainly don't count myself amongst their lot. I am much more comfortable with conforming and jumbo than government loans!

Thank you.
1 vote
Rosejains, Agent, New York, NY
Thu Jul 23, 2015
"On January 8, the Department of Housing and Urban Development (HUD) announced they would reduce the annual mortgage insurance premium (MIP) that borrowers have to pay when using an FHA loan. This reversal follows a series of MIP increases made over the last few years.

This change only affects the annual premium for FHA-insured home loans. The upfront MIP was not changed for 2015. Additionally, these reductions only apply to 30-year mortgages (or, technically, anything “greater than 15 years”). This rate reduction does not apply to 15-year mortgage loans.

Bottom line: For 30-year mortgages with the standard minimum down payment of 3.5%, the FHA annual MIP rate was reduced from 1.35% of the loan balance to 0.85% of the balance."

Web Reference:
3 votes
David Chambe…, , Saint Petersburg, FL
Fri Feb 6, 2009
Here is a link about refunds:

Exerpt from HUD
We've Got Answers!

Are you a consumer with questions about… Buying a home?
Qualifying for a loan?
FHA loans?
Down payment assistance?
HUD Homes?

Are you an industry partner with questions about… FHA loan products?
Processing issues?
Mortgage credit guidelines?
Property analysis guidelines?
Using FHA Connection?

You have three easy ways to get the facts! Search Our online knowledge base helps you find answers 24/7.
Email We're open 24/7.
Phone Monday-Friday, 8 am to 8 pm ET,
Tollfree: (800) CALL-FHA or (800) 225-5342
TDD: (877) TDD-2HUD (877) 833-2483).

I don't quote rates or advertise rates there are to many variables and you haven't given enough info.
1 vote
Robert Spino…, Mortgage Broker Or Lender, Mill Valley, CA
Fri Feb 6, 2009

On an FHA 30-year fixed loan, you will pay the monthly MIP for the life of the loan. It is not removed with any equity position you attain.

UFMIP can be partially refunded in the instance of a refinance, thus the "unused" portion of that initial 1.75% may come back to you in the event your refinance early in the loan term.

Finally, UFMIP is "built into" the loan amount, but not to the loan-to-value (LTV). So, if you have a $100,000 mortgage, you will actually finance $101,750 due to the UFMIP. Your payments are based on the higher loan amount, however, your LTV is viewed as if it were based on the lower of those two numbers.

Unfortunately, I cannot originate FHA loans in CO, so I can't help you on the rate quotes. But I do hope the above proves informative.

Good luck and let me know if you need a sounding board as you conduct your research.

Thank you.
1 vote
Arvin Sahaki…, Agent, Huntington Beach, CA
Fri Jul 24, 2015
Hi San Fran,

Great Questions: If you are paying a Mortgage Insurance Premium (PMI) every month, then you likely attained a Conventional Loan with less than 20% equity in the property after considering the full loan amount on closing date. You will either have to request the cancellation of this insurance in writing once certain criteria's are met, or your lender will cancel automatically. Ask you lender about the criteria.

If you are paying a Mortgage Insurance Premium (MIP) every month, then you likely have an FHA Loan. Unlike PMI, it can be harder to stop paying MIP, even as your equity rises. You may have to pay this fee for multiple years, if not for the life of the loan. Many borrowers have gotten around this issue by simply refinancing their FHA loan once the equity in their home increases beyond 20%.

I've written an article titled "What is Mortgage Insurance?" that I believe will help answer some if not all of your concerns surrounding mortgage insurance.

I Hope this helps!

0 votes
Other/Just L…, , Fleming Fitch Grant, Holly Hill, FL
Sat Feb 7, 2009
Lending answer:

1.) FHA does not make loans. FHA insures loans made by banks. An FHA insured loan is eventually sold to Fannie Mae, just like a conventional loan. The difference is that (a) FHA insures the lender against loss up to 100% of the loan while Private Mortgage Insurance companies max out at 35%, and (b) FHA underwriting guidelines apply.

2.) The minimum downpayment for an FHA insured loan is now 3.5%

3.) FHA requires a one time insurance payment at closing (UFMIP) as well as a monthly mortgage insurance premium. The monthly insurance premium continues for 5 year or until the scheduled payments reduce the principal balance to 78% of the original amount borrowed.

4.) The FHA mortgage insurance premium is NOT refundable. If you presently have an FHA insured mortgage, and choose to refinance that mortgage into another FHA insured mortgage, a portion of the unused upfront premium may be applied to the new upfront mortgage insurance premium as Rob demonstrates below.

5.) The only time FHA does not require a mortgage insurance premium is for loans with a term of 15 years or less and an LTV at or below 90%.

If you go with a conventional loan and your LTV is below 80%, you won't pay PMI on a primary residence. However, Fannie and Freddie now have numerous pricing additions which will drive your interest rate up in most cases.
0 votes
Thank you - I have the same issue and could not get an answer on pay the upfront PMI, and STILL have the monthly PMI payments going forward...I didn't know if the up front paid the first however-many months of PMI on the mortgage or not....could not get a straight answer. Thanks.
Flag Tue Jul 26, 2016
Luke Allison, , Asheville, NC
Fri Feb 6, 2009
5.5% is par right now with no YSP a 1 Origination. You can buy down to 5.00% with 1 point.

Rates always fluctuate so your best best is to register you loan and float until you get close to the closing. If and when rates drop, 5.00% will start to cost less and less until it is the par rate.

If I can be of any help, please let me know.
Luke Allison
Flagstar Bank

Apply Online:
0 votes
SanFran, Home Buyer, Broomfield, CO
Fri Feb 6, 2009
Rob Spinosa,
Thanks for ur input.
So the UFMIP is refundable in a refinance. So check if this calculation is correct.
Say my UFMIP is $5K = $166.67/year. So if I refi in 5 yrs, I would get back 5K - $166.67 x 5 yrs = $4166.65?
Is that how the refund calc would work?
0 votes
Daniel Herron, Agent, Lakewood, CO
Fri Feb 6, 2009
This guy can answer all your questions and most likely have the best rate you will find.

Give him a call and tell him I sent you.

Brian Walsh

Take care,

Daniel Herron
0 votes
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