FHA Mortgage-Part II Monthly Mortgage Insurance (MIP)
Now for the second part…
FHA has a Monthly Insurance Premium (MIP) 1.35% (which was increased this past April 1, 2013), it is calculated annually then divided by 12 for your monthly mortgage insurance, then this amount is added into your monthly mortgage payment.
Starting on JUNE 3, 2013 this MIP will be for the LIFE OF THE LOAN. However, if you make a 10% down payment, this can be removed after 10 years. Currently the monthly MIP could be removed once your property has reached 78% LTV (loan to value). With the new changes the only way you will be able to remove your monthly mortgage insurance premium is if you refinance into a conventional loan.
Example of Monthly Mortgage Insurance:
$100,000 house = $107 per month
$200,000 house = $215 per month
$300,000 = $323 per month
This monthly amount is added into your monthly mortgage payment. Clear as mud?
Why does FHA have mortgage insurance? This is to insure your mortgage with HUD in the event you default on your home loan. It is to help insure the investors (banks/servicers) that if you were to default on your loan this would help cover any losses they incur.
F.H.A helps many of us purchase homes with lower down payments. As I’ve stated before, it is a great mortgage which has helped many Americans become homeowners.
Make sure to catch the next part on the FHA loan series….