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Understanding FHA Loan PMI

fha loan pmi, fha pmi


As you may have heard, the FHA is making changes to its mortgage insurance policies this year. The first change, an increase in mortgage insurance premiums (MIP), has already gone into effect as of April 1st. Let’s dive into the details of the next policy change coming this June. 

Beginning June 3rd, 2013, some borrowers in FHA loans will be required to pay the MIP for up to 11 years, while some borrowers will be required to continue to pay for the entire the life of the loan.

Don’t worry, I will explain everything, but let’s start at the beginning.

Quick Review: What Is An FHA Mortgage?

An FHA mortgage is a mortgage that is insured by the Federal Housing Administration, also known as the FHA.  FHA loans are available in various lengths (ex. 30 years, 15 years, etc.) and are available as fixed rate mortgages or adjustable rate mortgages. Homebuyers with less than perfect credit or a low down payment, often find FHA loans to be their best choice.

FHA MIP: Say What?

MIP stands for Mortgage Insurance Premiums. Like all insurers, the Federal Housing Administration collects a premium which is the amount you pay for your mortgage insurance policy. With FHA loans you are required to make a one-time payment called the Up Front Mortgage Insurance Premium (UFMIP), as well as make monthly insurance payments (MI). These payments are determined by your loan amount and go into a fund called the Mutual Mortgage Insurance Fund.  Monies in the Mutual Mortgage Fund are used to pay the mortgage lender should a borrower default on an FHA loan.

These MIP increases are consistent with the Federal Housing Administration’s efforts to strengthen the Mutual Mortgage Insurance Fund.

Hud.gov states, “In addition to protecting the MMI Fund, these changes will encourage the return of private capital to the housing market, and make sure FHA remains a vital source of affordable and sustainable mortgage financing for future generations of American homebuyers.”

The changes announced will further contribute to the efforts made throughout the Obama Administration’s tenure to improve risk management at FHA and protect the Mutual Mortgage Insurance Fund.  Because of these commitments, the changes made at FHA over the past four years have already added more than $20 billion in value to the MMI Fund. (hud.gov)

April 1, 2013: FHA MIP Changes

Effective for all case numbers on or after April 1, 2013, FHA will increase annual MIP by 0.10 percent. These changes will be based on the base loan amount and LTV ratio.

Here's What's Changed:

FHA will increase its annual mortgage insurance premium (MIP) for most new mortgages by 10 basis points or by 0.10 percent.  Premiums on jumbo mortgages ($625,500 or larger) will increase by 5 basis points or 0.05 percent, to the maximum authorized annual mortgage insurance premium.

This table shows the previous and new annual MIP increases effective on or after April 1, 2013:

June 3, 2013: FHA MIP Changes

Beginning June 3, 2013, the FHA will collect annual MIP for the maximum duration permitted and change its long-standing Annual MIP Cancellation Policy. Certain homeowners will lose their right to cancel the annual MIP. The changes will also reflect that regardless of the loan amount or LTV, every FHA borrower will have to pay MIP.

Here's What's Changing:

The FHA will change the duration of the annual MIP to the maximum duration permitted:

  • Loans beginning at 90% LTV or less will pay annual MIP until the end of the mortgage term or for the first 11 years of the mortgage term, whichever occurs first.
  • Loans beginning at 90% LTV or more will pay annual MIP for the complete loan term or for the first 30 years of the term, whichever occurs first.

This table shows the previous and new durations of annual MIP:

Beginning in June, the FHA will move away from their LTV-based system and most borrowers will no longer be able to cancel their MIP.

This table shows the previous and new effective MIP rates for loans that have an LTV of less than or equal to 78 percent with terms up to 15 years. The new annual MIP for these loans is effective for case numbers assigned on or after June 3, 2013:

Exceptions to MIP Duration Changes Include:

The changes to the duration of the annual MIP as specified in this Mortgage Letter (ML) are effective for all Single Family FHA programs for which FHA charges an annual MIP except:

  • Title I
  • Home Equity Conversion Mortgages (HECM)

Exceptions to Announced MIP Increases include:

The increases in the annual MIP specified in this ML apply to all mortgages insured under FHA’s Single Family Mortgage Insurance Programs except:

  • Streamline refinance transactions of existing FHA loans that were endorsed on or before May 31, 2009 (see ML 2012-04)
  • Title I
  • Home Equity Conversion Mortgages (HECM)
  • Section 247 (Hawaiian Homelands)

These changes will ONLY affect borrowers whose loan was originated after May 31, 2009 and choose to refinance after June 3, 2013.

Protect Yourself

To protect yourself from the new annual MIP, call us today to get your FHA loan case number pulled prior to June 3, 2013.

For further information regarding these changes, click here.

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