What is FHA Mortgage Insurance
and How Does it Work?
Mortgage Insurance remains a hot topic for potential Borrowers, current Borrowers, and professionals alike. And of great interest, no matter which type of mortgage program it's utilized in ... Conventional or FHA (Federal Housing Administration).
While I've written in the past about Mortgage Insurance as it relates to Conventional financing, I now want to focus on its counterpart within FHA Loans ... which is mandatory, guaranteed, and government issued (not Privately backed by Corporations). (See past posts, "Understanding Private Mortgage Insurance. PMI: The Pros and Cons" and "How to "Replace" Mortgage Insurance")
Since FHA Loans are government insured, it should come as no surprise that the Mortgage Insurance required with their use is also government-issued and regulated. Or that its cost is directly related to the performance (repayment) of Borrowers' FHA Loans.
As a result, over the last 7 to 8 years, there have been many revisions to the cost for FHA Mortgage Insurance. Revisions driven by great losses (foreclosures) suffered throughout the Housing Crisis, especially in the FHA Mutual Mortgage Insurance Guaranty Fund throughout 2008 and 2009.
The costs of Annual/Monthly Mortgage Insurance, as well as the upfront charges, have changed almost as often as the manual scoreboard at the Chicago Cubs' Wrigley Field this year. (Yep! A shameless plug and shout-out. Go Cubs!)
Here's a little insight into FHA's two (2) types of Mortgage Insurance payment ... and how costs are currently figured on each:
1. UPFRONT Mortgage Insurance: As of the writing of this article (9/29/2016), costs are at 1.75% of the Loan Amount. This cost is financeable. In other words, the cost is added to the Base Loan Amount, in most cases.
Example using a Base Loan Amount of $200,000:
- If the Borrower makes a Down Payment of more than 5%: Mortgage Insurance costs drop to .80% ... or $135.67/month. (Utilizing the same scenario as above)
- The above rates apply to 30-year term loans
- Costs come down considerably on FHA Loans with 15-year terms
- They also drop when Down Payments of 10% or more are made
* Hoping to Buy or Refinance a Home in New Lenox or elsewhere in the Chicagoland area? Contact me! I'll put my 40+ years of Mortgage experience and expertise hard to work on your behalf.
I can be easily found at:
Mortgage Originator - nmls #216987 - IL Lic. 031.0006220 - WI Licensed
Mortgage Originator - NMLS #216987
IL Lic. #031.0006220 - WI License #216987
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