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How Much Is FHA Mortgage Insurance?
Before you refinance your loan, you need to know how much FHA mortgage insurance costs. It will be added to your monthly payment.
To avoid paying this premium, you should refinance into a loan program that does not require it. Several options include refinancing into a loan program with a different MIP rate.
Calculate Upfront Mortgage Insurance
To calculate the amount of mortgage insurance required by an FHA home loan, you must input the loan amount and the premium amount.
The premium amount is based on the loan-to-value ratio and can be paid in full at closing or paid monthly over time. It varies depending on the loan amount and length of repayment.
A typical upfront mortgage insurance premium for an FHA loan is about 1.75 percent of the loan amount. This premium is refundable for the first three years. After this period, however, you will no longer be able to receive this amount. The amount is rounded up to the nearest $100.
The upfront mortgage insurance (UMI) payment equals 1.75% of the loan value and is paid at closing. This payment can be rolled into the mortgage or added to the loan balance.
The upfront mortgage insurance payment is only one time. Each year’s cost of the MIP depends on the loan’s length, the amount of the down payment, and the number of years of repayment.
Sometimes, the upfront mortgage insurance premium may be refundable if you refinance within three years. However, this refund will diminish monthly, so you should consider this when refinancing.
Also, if you have an existing FHA loan, you may be eligible for a discount on the upfront mortgage insurance premium.
Just check the contract date and the amount of MIP you have already paid for your previous loan. If the existing loan is less than three years old, the FHA will refund your MIP toward your new loan.
Although it is not a tax deduction, the upfront mortgage insurance for an FHA loan can be deductible.
The upfront mortgage insurance is typically 1.75% of the “base” mortgage. This means that it is not dependent on the lender’s credit score, making it easier for borrowers with low credit scores to qualify for conventional loans. A mortgage with an FHA loan will require a higher down payment.
Monthly Mortgage Insurance Premium
Mortgage insurance premiums are a vital part of the monthly payments you make to your lender. They cover the lender’s investment when you default on your mortgage.
Your monthly premium amount depends on the loan term, loan-to-value ratio, and loan date. Borrowers with less than 20% down pay a lower MIP, which can be as low as 0.45%.
Fortunately, this mortgage insurance premium is temporary and can be dropped when your balance falls below 80% of the appraised value.
In some cases, the monthly premium for FHA mortgage insurance can even be eliminated when you refinance.
In addition, with mortgage rates below their historical norms, many homeowners are choosing to refinance and enjoy a PMI-free mortgage.
In January 2015, the FHA cut its mortgage insurance rate to 0.85 percent. It projected that this would save new borrowers about $900 a year or $75 a month.
However, individual savings vary widely. The amount you save will depend on the type of property you’re buying, your loan-to-value ratio, the length of your loan, your down payment, and many other factors.
There are two FHA mortgage insurance premiums: an upfront and a monthly premium. The upfront premium is paid when you first get the loan and is added to the principal balance.
The monthly premium will vary based on your loan-to-value ratio, down payment, and term.
A mortgage insurance premium chart can help determine how much you’ll pay each month. For the most part, most FHA loans will fall in the lower end of these categories, with loan amounts of less than $625,500 and a term of up to 15 years.
FHA loans are the best choice if you’re a first-time home buyer. However, other home loans offer lower down payments and cheaper mortgage insurance.
Most conforming loans meet Freddie Mac’s and Fannie Mae’s guidelines but aren’t insured by the government.
Private mortgage insurance is available but doesn’t come with the same government benefits as FHA.
You can reduce your monthly mortgage insurance premium by refinancing your loan. Many lenders will waive your mortgage insurance premium if you have at least a 10% down payment on your loan.
Refinancing your loan can save you thousands of dollars and even lower your interest rate. A mortgage loan expert can help you figure out the best refinancing options.
A downside of FHA mortgage insurance is that it can be expensive. The upfront premium is costly, and additional premiums can eat into your budget.
However, you can cancel your mortgage insurance if you do not want to keep paying it for as long as you live in your home. The monthly premium can be canceled anytime if you meet the minimum equity requirements.
FHA mortgage insurance is an excellent option for borrowers with low credit scores. Borrowers with credit scores below 720 can qualify for FHA mortgage insurance with only 3.5 percent down. With low credit scores, you may need a higher credit score to qualify for a conventional mortgage.
Refinance Into a Loan Program Not Insured by the FHA to Get Rid of It
Refinancing into a loan program not insured by the Federal Housing Administration (FHA) can lower your monthly payments and eliminate the need for mortgage insurance.
However, you may have to pay a higher closing cost, and your monthly payments may take longer to approve.
If you decide to go this route, make sure you qualify for the loan first. Also, consider how much you’re currently paying for FHA mortgage insurance.
Conventional refinancing is another option. Unlike FHA mortgage insurance, conventional refinances are issued by private lenders and are not backed by government agencies.
These loans allow borrowers to get rid of FHA mortgage insurance by reducing monthly payments, extending their loan term, or getting cash to make home improvements.
In some cases, homeowners who have a conventional mortgage loan may be able to get rid of FHA mortgage insurance after they obtain a new appraisal. However, this process varies from loan servicer to loan servicer. Contacting the servicer directly is best to learn more about the process.
The federal government requires FHA mortgage insurance for borrowers with less than 10 percent down. However, many borrowers opt to refinance into a loan program that doesn’t require mortgage insurance by opting out of the FHA program. This allows them to avoid paying mortgage insurance and increase their home equity.
If you have more than 20% equity in your home, you can opt to drop the mortgage insurance if you refinance into a conventional loan program. But it is important to note that you must have a good credit score to qualify for this option. A high credit score can save you a substantial amount on monthly mortgage payments.
The best option to get rid of FHA mortgage insurance is to refinance into a loan program that the FHA doesn’t insure.
However, you should be aware that some lenders offer PMI with a monthly payment. If you’re not eligible for this option, you’ll be required to pay the monthly premium on your loan.
Refinancing into a loan program not insured by the Federal Housing Administration (FHA) can eliminate your mortgage insurance costs.
However, the FHA requires borrowers to pay two types of mortgage insurance: upfront and ongoing. Upfront mortgage insurance is 1.75% of the loan amount.
Ongoing mortgage insurance is 0.45% to 1.05% of the loan balance and is charged annually. You can also eliminate your mortgage insurance if you sell your home or pay off the loan in full.
Refinancing into a loan program not insured by the Federal Housing Administration (FHA) can eliminate your mortgage insurance costs if you’ve already built up enough equity in your home. The benefits of this option include lowered closing costs, simplified application procedures, and less paperwork.