by 30 Basis Points to Support Affordable Homeownership
The Federal Housing Administration (FHA) announced today through Mortgagee Letter 2023- 05 a 30 basis point reduction to the Annual Mortgage Insurance Premiums (annual MIP) it charges borrowers for FHA-insured Single Family Title II forward mortgages.
When you take out an FHA loan, your lender will collect an upfront mortgage insurance premium that's equal to 1.75% of the loan amount. This FHA loan MIP can be paid at closing or rolled into your monthly mortgage payment.
Monthly MIP: The Mortgage Insurance Premium (MIP) is the FHA's version of PMI, a monthly payment that protects lenders in case of loan default. This ranges from 0.40% to 0.75% depending on your down payment, home price and loan term.
That depends on how much equity you have. If you have a home equity stake worth 20 percent or more of the home's value, you won't need to pay PMI.
The most common and effective way to remove PMI from an FHA loan is to refinance into a conventional mortgage. This can offer benefits such as no more annual MIP payments, potentially lower interest rates, and longer loan terms. Benefits: No more annual MIP payments.
If you can afford it, putting 20% down on a house is ideal. It helps you avoid private mortgage insurance (PMI), reduces your loan amount, and lowers monthly payments.
Current Up-Front Mortgage Insurance Premium
The UPMIP is currently at 1.75% of the base loan amount. This applies regardless of the amortization term or LTV ratio.
No, FHA loan PMI removal is technically impossible because PMI is for conventional mortgages only. FHA loans have MIP, which usually lasts 11 years or the life of the loan. To remove MIP, you must refinance into a conventional loan once you have enough equity.
FHA loans work like most other mortgages, with either a fixed or adjustable interest rate and a loan term for a set number of years. There are two term options: 15 years or 30. You'll also pay closing costs for an FHA loan, such as appraisal and origination fees.
FHA's annual MIP is calculated as a percentage of the outstanding loan balance. For example, an outstanding loan balance of $200,000 with a 0.55% annual MIP (the standard pricing for most FHA-insured mortgages), would yield an annual MIP amount of $1,100.
The National Association of Home Builders expects the 30-year mortgage rate to decrease to around 6.5% by the end of 2024 and fall below 6% by the end of 2025, according to the group's latest outlook.
Current FHA loan rates. Since the pandemic, rates on FHA loans have bounced around — from less than 3 percent during the pandemic to 8 percent in 2023 to closer to 6 percent as of September 2024.
If you have an FHA-insured mortgage, these options may be available to you. Informal or Formal Forbearance Plan: A Forbearance plan allows a borrower to work with their mortgage servicer to temporarily pause or reduce their monthly mortgage payments and may provide specific terms for repayment.
Removal: MIP remains in place for the life of the loan unless the borrower refinances into a different loan type, such as a conventional loan. In contrast, PMI can be canceled once you reach 20 percent equity in your home, providing a pathway to reduce your monthly costs.
FHA Loan: Cons
Here are some FHA home loan disadvantages: An extra cost – an upfront mortgage insurance premium (MIP) of 2.25% of the loan's value. The MIP must either be paid in cash when you get the loan or rolled into the life of the loan. Home price qualifying maximums are set by FHA.
FHA Rule 75 states that 75% of the rental income must exceed the monthly mortgage for the property to be self-sufficient. This percentage must be at least enough to cover the mortgage payment, known as PITI (Principal, Interest, Taxes, and Insurance.)
Can I rent out my FHA home after the first year? Yes, after fulfilling the initial one-year occupancy requirement, you can rent out your FHA home. However, if you plan to purchase another property with an FHA loan, you will need to meet specific conditions and justifications for maintaining the original FHA loan.
National 30-year fixed FHA mortgage rates remain stable at 6.33% The current average 30-year fixed FHA mortgage rate remained stable at 6.33% on Saturday, Zillow announced. The 30-year fixed FHA mortgage rate on January 11, 2025 is up 75 basis points from the previous week's average rate of 5.58%.
When you refinance, you can avoid the PMI requirement by ensuring that your new loan is only 80% of your home's value. If you decide to refinance for a larger amount, you'll need to pay for PMI until your LTV ratio is 80%.
The reason is simple: APR calculations include Upfront Mortgage Insurance, which is 1.75% of the loan amount for FHA Loans. So every FHA loan has a very high APR when compared to the actual note rate.
Your lender adds a PMI fee to your monthly payment, which you must pay until you reach 20% equity in your home. In other words, you must pay your loan balance down to 80% of your home's original value. Once you reach this threshold, you can request cancellation.
How much down payment for a $300,000 house? The down payment needed for a $300,000 house can range from 3% to 20% of the purchase price, which means you'd need to save between $9,000 and $60,000. If you get a conventional loan, that is. You'll need $10,500, or 3.5% of the home price, with a FHA loan.
Put 10% Down with No PMI by Using a Piggyback Loan
The other 10% required to make up a 20% down payment comes from a second loan, worth 10% of the home's value. That second loan “piggybacks” on the mortgage. It's completely separate which means it will have its own terms and interest rate.