Rising MIP Affecting FHA Mortgage Loans
The FHA at one point in time was more appealing to a wider range of homeowners with their easier credit standards, lower down payment requirements (as little as 3.5%) and their acceptance of an LTV (Loan-to-Value) of 96.5% in all mortgage type properties. FHA Mortgage Insurance Premiums are getting way too high for current FHA borrowers. Many of these current borrowers are looking for ways to remove FHA’s MIP.
FHA Mortgages Overlooked in 2014
FHA mortgage homeowners are breaking their wallets just to keep up with their Mortgage Insurance Premiums alone (MIP). This has now become a financial burden for many low-to-moderate income borrowers, after all… The FHA was originally made for these specific type of borrowers, making it more affordable to finance on a home and with easy qualifying credit more borrowers would have a chance to become a homeowner, that was before the MIP increase.
Because of a federal-mandated 2% reserve that is required of the FHA, it is forced to increase its mortgage insurance premium 5 times within 5 years. Mortgage insurance premium under the FHA is charged in two parts today. During closing of the loan an Upfront Mortgage Insurance Premium (UFMIP) the first part of the MIP is required, which is then followed by the second MIP charge that is included in the borrower’s monthly mortgage payment. A borrower’s MIP with FHA may vary depending on the down payment and the length of the loan that is agreed on. Lucky for you, Mortgage Home Base has teamed up with a network of FHA mortgage professionals across the nation that can assist you with any questions you may have before you make any changes or committ to something.
UFMIPs are usually a payment of anywhere from 1.75% or 1,750 for every $100,000 that a person borrows. With the increasingly high insurance premiums, homeowners may be better off refinancing out of the FHA completely and into a Conventional Mortgage to help them save and reduce their financial burdens. Conventional Mortgages may be harder to qualify for some, but for the FHA consumers who are able to take advantage of this transition they may be able to ditch the requirement of MIP altogether. Refinancing into a Conventional, you must have at least 20% in equity. The Conventional Mortgage usually requires a 5% to 20% down payment for those who are interested in choosing a Conventional for their first mortgage.
Pros of Conventional Mortgage Loans
FHA loans may have a lower down payment and easier credit qualifying requirements, but those who opt for FHA loans are subject to the Upfront Mortgage Insurance Premium payments. The UFMIP is unavoidable and the only way you are able to avoid the Annual MIP payments is if you have 22% in equity or more and a 15 year or less loan term. Conventional loans offer more options such as conforming or non-conforming loans. Here are the Pros of a Conventional mortgage loan:
- No certain cap off loan limit.
- No Mortgage Insurance Premium required.
- Even if you don’t have 20% down, in some cases you may be able to take advantage of low down payment programs and still be able to dodge mortgage insurance.
- Conventional loans are available at most banks and offered by most lenders in the nation making it more convenient.
- Conventional loans can be used to finance just about any property, whereas some condos and complexes may not be approved under an FHA loan.
Both types of mortgages offer competitive rates but when it comes to extra costs, who wouldn’t want to save a buck or two? If your FHA mortgage insurance premium has become a stressful monthly burden to you, it may be best to look at refinancing into a loan that would allow you to completely ditch your MIP. Photo Credit
Jessica Lucas
