Arizona Mortgage Guru » FHA’s Upfront Mortgage Insurance Premium and Monthly MI

Borrowers with a subprime mortgage who are refinancing to a FHA mortgage are often not aware of the upfront mortgage insurance premium (MIP). As the name implies, this is paid upfront at the time of close. During the subprime heyday MIP was one of the reasons not to do a FHA mortgage. How the tables have turned.

FHA under the 203b, 234(c), & 203k programs charges an upfront MIP equal to 1.5% of the loan amount. If you end up selling the home or refinancing the loan within the first 84 months (7 years) you are entitled to a refund of the balance. MIP can be wrapped into your loan, but you have the option to make a cash payment at close as well.

If you are putting less than 10% down then FHA also charges a monthly mortgage insurance equal to 0.5% of the loan amount. You must pay this even if your home appreciates to the point where your loan balance is less than 80% of the value of the home. FHA will not allow you to cancel.

So, on a $200,000 mortgage here is what your fees look like:

Upfront Mortgage Insurance Premium (MIP) = $3,000
Monthly Mortgage Insurance = $83.33

Subprime lenders used these two FHA features as a major selling point for their loans and so a lot of folks in the industry have forgotten how it works. As a borrower these are things you need to be aware of as you consider refinancing your subprime mortgage into a FHA mortgage.

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Tags: FHA, Mortgages, refinance, subprime
Categories: Mortgage Insurance, Real Estate, Subprime Mortgages

8 Responses to “FHA’s Upfront Mortgage Insurance Premium and Monthly MI”

Rob Aubrey wrote a comment on October 14, 2007, 6:00, am

Good job explaining the Sub Prime vs FHA. I didn’t know about the 10% down part, thanks

It cracks me up, during the don’t ask any questions and I won’t tell any lies period of mortgage lending.

An 80/20 loan.

If you have a first mortgage at 6.5% and a second at 10% and you can’t figure out where the MI is, call me I have swamp land in Florida for sale,

Don’t you just love the mortgage people that don’t qualify to do FHA loans.

FHA Qualified Mortgage Brokers

$250,000 Net Worth (20% liquid)
A Written Quality Control Plan (them b@st#rd$, imagine expecting a minimum level of quality)
You Must Go Through An Annual Audit Of Your FHA Files

Hmmm, sounds like even if I am doing an conventional loan I should use an FHA qualified lender anyway.

Even their name Sub Prime ugh.

Carl Pruitt wrote a comment on October 15, 2007, 11:50, am

A few years ago when the bond ratings agencies were still showing the subprime pools to be less risky for bond investors than they really are, subprime teaser rates were so low that FHA mortgage insurance did indeed make the payment higher than subprime. Now that the market has “corrected” subprime interest rates higher, FHA loans are a good deal. The base rate is so much lower than subprime that adding a little mortgage insurance (still less than required on conventional Fannie Mae loans) doesn’t take the payment as high as subprime loans do.

Shailesh Ghimire wrote a comment on October 15, 2007, 8:58, pm

Carl,

Very good point. Thanks for stopping by.

FHA Loans wrote a comment on October 17, 2007, 3:00, pm

yep I do a lot of FHA loans, and now many borrowers are aware of the FHA mip refund

Arizona Mortgage Guru » Blog Archive » Is the FHA Loan Program Right For Me? sent a pingback on October 19, 2007, 9:39, am

[...] more than 10% down, then you do not need to pay the monthly mortgage insurance. I have addressed MIP and MI in more detail elsewhere so I will not go into more details [...]

Mike P wrote a comment on November 2, 2007, 1:46, am

HUD no longer issues refunds for loans made since December 2004… check out HUD’s Mortgagee Letter 2005-03. In other words you’ll never see any of that upfront premium.

Shailesh Ghimire wrote a comment on November 2, 2007, 10:59, am

Mike P,

Thanks for pointing out the refund is no longer available.

Arizona Mortgage Guru » FHA Mortgage Insurance Rates Now Risk Based sent a pingback on July 13, 2008, 5:18, pm

[...] the Upfront Mortgage Insurance Premium (UFMIP)and monthly Mortgage Insurance IMI) will now be risk based. Even though the borrower has the option [...]