* Disclaimer – all information in this article is accurate as of the date this article was written *

The FHA Mortgage Insurance Premium is an important part of every FHA loan.

There are actually two types of Mortgage Insurance Premiums associated with FHA loans:

1.  Up Front Mortgage Insurance Premium (UFMIP) – financed into the total loan amount at the initial time of funding

2.  Monthly Mortgage Insurance Premium – paid monthly along with Principal, Interest, Taxes and Insurance

Conventional loans that are higher than 80% Loan-to-Value also require mortgage insurance, but at a relatively higher rate than FHA Mortgage Insurance Premiums.

Mortgage Insurance is a very important part of every FHA loan since a loan that only requires a 3.5% down payment is generally viewed by lenders as a risky proposition.

Without FHA around to insure the lender against a loss if a default occurs, high LTV loan programs such as FHA would not exist.

Calculating FHA Mortgage Insurance Premiums:

Up Front Mortgage Insurance Premium (UFMIP)

UFMIP varies based on the term of the loan and Loan-to-Value.

For most FHA loans, the UFMIP is equal to 2.25%  of the Base FHA Loan amount (effective April 5, 2010).

For Example:

>> If John purchases a home for $100,000 with 3.5% down, his base FHA loan amount would be $96,500

>> The UFMIP of 2.25% is multiplied by $96,500, equaling $2,171

>> This amount is added to the base loan, for a total FHA loan of $98,671

Monthly Mortgage Insurance (MMI):

• Equal to .55% of the loan amount divided by 12 – when the Loan-to-Value is greater than 95% and the term is greater than 15 years

• Equal to .50% of the loan amount divided by 12 – when the Loan-to-Value is less than or equal to 95%, and the term is greater than 15 years

• Equal to .25% of the loan amount divided by 12 – when the Loan-to-Value is between 80% – 90%, and the term is greater than 15 years

• No MMI when the loan to value is less than 90% on a 15 year term

The Monthly Mortgage Insurance Premium is not a permanent part of the loan, and it will drop off over time.

For mortgages with terms greater than 15 years, the MMI will be canceled when the Loan-to-Value reaches 78%, as long as the borrower has been making payments for at least 5 years.

For mortgages with terms 15 years or less and a Loan -to-Value loan to value ratios 90% or greater, the MMI will be canceled when the loan to value reaches 78%.  *There is not a 5 year requirement like there is for longer term loans.

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Related Articles – Mortgage Approval Process:

• Basic Mortgage Terms
• How Much Can I Afford?
• Common Documents Required For A Mortgage Pre-Approval
• Top 8 Questions To Ask Your Lender During Application Process
• What’s The Difference Between An Investment Property, Second Home and Primary Residence?
• Seven Items Real Estate Agents Need To Know About Your Mortgage Approval

Contact Me

If you would like more information about mortgage lending, give me a call. Even if you are already working with a mortgage lender, call me. You wouldn’t have back surgery without a second opinion, why would you buy a home without one. Call me for the second opinion. We can discuss your specific information and if you are in the best product for you, I will tell you so. I am Fred Chamberlin, Senior Mortgage Consultant at Alpine Mortgage Planning, 1200 Executive Pkwy., Eugene OR 97401. I am here to help you with the mortgage loan process and also help you avoid stress. The mortgage process is changing rapidly, make certain you are working with someone that can keep up with the changes. You can reach me at 541-342-7576/541-221-3455 cell or by e-mail. Trust experience to help you with your Eugene/Springfield mortgage questions. One final note, my offer is not limited to Lane County but can be used anywhere we are doing business. Call today!