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
nmls #175656
Gene Mundt
Mortgage Originator - NMLS #216987
IL Lic. #031.0006220 - WI License #216987
NMLS #175656
Gene Mundt, Mortgage Originator, 40+ years of #mortgage experience, will offer you exemplary mortgage service and advice when seeking: #Conventional, #FHA, #VA, #Jumbo, #USDA, and Portfolio Loans in #Chicago and the greater Chicagoland region, including: The #Lincoln-Way Area, #Will County, (#New Lenox, #Frankfort, #Mokena, #Manhattan, #Joliet, #Shorewood, #Crest Hill, #Plainfield, #Bolingbrook, #Romeoville, #Naperville, #Wilmington, #Peotone, etc.), #DuPage County, the City of Chicago, #Cook County, and elsewhere within IL and Wisconsin.
Your Referrals & Testimonials are Always Greatly Appreciated!
Good afternoon Gene. Now that I understand, all I have to do is give a buyer your number! Enjoy your day
Gene you did a great job explaining the FHA MI and Upfront Mortgage Insurance, and keeping it simple
Gene this is an excellent explanation of FHA mortgage insurance. It can be so confusing to buyers. Great job!
Gene
Very informative post on FHA mortgage Insurance . . . . and big help to sales professional doing FHA mortgages.
Good luck and success.
Lou Ludwig
Gene
Congratulations on being recognized with a feature an informative post.
Good luck and success.
Lou Ludwig
Gene, You have masterfully explained mortgage insurance. The examples you outline make it easy to understand ... at least for me. Thank you.
Great blog post on FHA mortgages George. I have heard that in the 1960's these were very popular. I wonder why they fell out of favor?
hmmm, didn't know you drop it after 11 years with 10% down on FHA.
I continue to advocate for save 20% down to young people. Of course even my own daughter didn't.
Great explanation and the reason why I am proud to be a Veteran and use VA loans to purchase my homes.
Gene,
Great explanation of mortgage insurance. If there is one hot button item with many buyers...it's PMI.
Rich
Hi Gene
You did a masterful job of explaining Mortgage Insurance for FHA loans - everything any buyer should know.
Have a terrific weekend!
Jeff
For those that have to know...this be the posting and the source to go to
The MIP associated with an FHA Loan is a factor that is constanly changing (over a 35+ yr real estate career) and needs to be reviewed on a regular basis ! Thanks for the update !
More buyers need to learning about this issue.
Hi Gene - That's a great rundown of how FHA mortgage insurance works - I've bookmarked it to have available for future clients. Thanks!
Great details on FHA MI, Gene. Nice shout out, too --- I'm hoping we get a Theo Epstein themed Cubs-RedSox October battle! And if not, at least hockey season is here : )
Thanks Gene. Great information for those considering FHA loans.