FHA PMI or MIP has been in the news in big ways over the last 3 years. There have been enhancements which helps buyers achieve home ownership easier. Plus the payments are more affordable.
Recent Changes in FHA Costs
The Federal Housing Administration decided in January 2013 to make FHA PMI for most borrowers continue for the life of the loan to shore up the FHA insurance reserves. Then in January 2015, President Obama spearheaded FHA to drop the PMI factors by .50 basis points which saved FHA borrowers a lot on their mortgage payment. Many have been hoping that FHA would drop the life of loan PMI cost because FHA recently surpassed the Mortgage Insurance balance threshold mandated by Congress. The bad news for buyers is that Ed Golding, who serves as head of the FHA, testified before a House Financial Services subcommittee on Thursday about the status of FHA’s PMI.
FHA PMI Announcement
According to a report by Compass Point Research & Trading, Golding “did not provide updated guidance regarding mortgage insurance premiums”, but “he did address the FHA’s life of loan premium policy, which requires to pay annual mortgage insurance premiums for the life of the loan.”
Golding said “I am actually not considering changes to the life of loan policy”. There was some great news coming from the meeting. The notes stated FHA has exceeded the congressional mandated 2.0% threshold for minimum mortgage insurance levels. Plus it was achieved much earlier than expected. A healthy FHA means a continued, great financing option for buyers. These improvements to the program could be lower up-front or monthly PMI premiums. Maybe they will again address the life of loan requirement for qualifying FHA loans.
How FHA PMI is Calculated
FHA has a monthly PMI fee where the percentage varies depending on the percentage of the price/appraised value (whichever is less) and the loan term. The monthly amount of PMI is recalculated each year based on the new balance of the mortgage and the PMI percentage. The length of time that FHA PMI stays on the loan varies depending on the loan term and LTV as shown below:
- Loans at 90% LTV or more will pay the annual PMI for the complete term
- Loans less than or equal to 90% LTV will pay the annual PMI for 11 years
Loan terms greater than 15 years < $625,500: effective 1/26/15
- > 95% LTV =.85 PMI
- -< 95% LTV =.80 PMI
Loan terms 15 years or less < $625,500:
- -< 90% LTV =.45 PMI
- > 90% LTV =.70 PMI
While FHA is a great mortgage option for buyers, there are other options to consider as well. Check with our team of mortgage product experts to see if FHA or other products work for you!
- “I want to buy a home in a year or less”, Knowing your low to no down payment options
- Another creative way to lower a monthly payment. Calculators beware of lower payments!
- PMI Strategies that can potentially save over PMI
We hope you find this article helpful and we encourage you to reach out to our dedicated team of loan officers. Let us help you buy your next home!