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 1.00% of the Base FHA Loan amount (effective April 18, 2011).

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 1.00% is multiplied by $96,500, equaling $965

• This amount is added to the base loan, for a total FHA loan of $97,465

Monthly Mortgage Insurance (MMI)

• Equal to 1.15% 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 1.10% 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 1.00% of the loan amount divided by 12 – when the Loan-to-Value is greater than 90%, and the term is less than or equal to 15 years

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

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.

If you have any questions about this or if you have any questions you’d like us to answer on our podcast, you can email your questions to team@azmortgagebrothers.com or give us a call at (602) 535-2171. Be sure to ask us for a free quote on your next mortgage. We’ll personally work with you and help you through the whole process.

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Thanks for listening and reading the Mortgage Brothers Show. Let us know if you have any questions you’d like us to answer on this podcast. You can email your questions to Tom@AZMortgageBrothers.com or Eddie@AZMortgageBrothers.com.

Be sure to ask us for a free quote on your next mortgage. We’ll personally work with you and help you through the whole process.

Signature Home Loans LLC does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. Signature Home Loans NMLS 1007154, NMLS #210917 and 1618695. Equal housing lender.

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