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FHA Loan - PMI

April 5th, 2007 at 01:01 pm

We have a 30 year fixed rate FHA mortgage. Well, at FPU last night Dave was talking about PMI and how it works. After the video I was talking with the people in a discussion group about how to get rid of PMI for FHA. They thought that it could never go away but I called my mortgage company today and was told that it goes away after 7 years, as long as you meet other qualifications after the seven years is up. Until then they can't even do anything for you. They also told me to go to the HUD website if I had other questions, so I did. After looking there it looks like PMI for FHA can go away after 5 years (in my circumstance since I have a 30 yr note) but there are still other requirements.

Here's what the HUD website says:

Termination of the FHA monthly mortgage insurance premium (MIP) is based on several factors including: the loan term, loan-to-value (LTV) at loan origination and regulations in place when the loan is closed. Generally, loans closed prior to January 1, 2001 will not be eligible for termination of MIP, which is collected as part of your monthly mortgage payment.

For loans closed on or after January 1, 2001, FHA's MIP will be automatically terminated under the following conditions:

1. For mortgages with terms more than 15 years, the MIP will be terminated when the Loan to Value (LTV) ratio reaches 78%, provided the
borrower has paid the MIP for at least five years. If the LTV reaches 78% and the borrower has not paid MIP for at least five years then the borrower must continue to pay MIP until the five year requirement is met.

2. For mortgages with terms 15 years and less and with LTV ratios of 90% and greater, the MIP will be terminated when the LTV ratio reaches 78%, irrespective of the length of time the borrower has paid the MIP.

3. Mortgages with terms 15 years and less and with LTV ratios of 89.99% and less will not be charged MIP.

Although the MIP will be terminated as described, the FHA insurance will remain in force for the loan's full term. This MIP termination provision only applies to loans where the borrower also paid an Up-front MIP at closing.

FHA will determine when a borrower has reached the 78% LTV ratio based on the lesser of the sales price or appraised value at loan origination. For example, if the lesser of the sales price or the appraised value at origination was $100,000, when the loan amount reaches $78,000, HUD will no longer collect MIP on the loan.

FHA's regulations do not permit a borrower to submit a new appraisal to reach the threshold for termination of MIP. Termination of MIP will normally be based on the scheduled amortization of the loan. However, borrowers may reach the 78% threshold in advance of the scheduled amortization because of prepayments of loan principal. A borrower whose loan reaches the 78% LTV threshold sooner than projected because of prepayment may have the MIP terminated (but not sooner than five years from loan closing for loans with terms greater than 15 years) if the borrower has not been more than 30 days delinquent in paying the mortgage payments during the previous 12 months. The borrower must submit a termination request to the lender and the lender must provide the borrower's request and supporting documentation with respect to the mortgage payments during the last 12 months to FHA for such termination.

If you have questions regarding the termination of MIP, go to the following HUD website: http://www.hud.gov/offices/hsg/sfh/nsc/nschome.cfm or contact HUD's National Servicing Center at 1-888-297-8685 for more information.

So, I am a little bummed because we just bought our home in 2004 so we're not even near that mark. Lord willing we will have it paid off at least by the 15 year mark without refinancing...just by making extra payments after we're done with this other debt.

10 Responses to “FHA Loan - PMI”

  1. Elly Says:

    "Although the MIP will be terminated as described, the FHA insurance will remain in force for the loan's full term. This MIP termination provision only applies to loans where the borrower also paid an Up-front MIP at closing."

    I don't understand that statement, though. Anybody?

  2. sue Says:

    FHA loans require 5 years of pmi, regardless of the loan to value, EXCEPT if the loan is a 15 year term or less. So, with a 30 year loan of $100,000, even if you were only borrowing $20,000 there would still be pmi. The plus side is, if you are under $100,000 in income on your taxes, the monthly PMI is a tax deductible item as well as that 1.5% upfront FHA fee. Check with your accountant or tax service for the details on that and how to take advantage of it.

    If you got your home in 2004, you should be able to rid yourself of this expense in 2009 for the 5 year term.

    I am a mortgage broker in Indiana!

  3. refinancing with low scores Says:

    I contacted a lender to get my property refinanced with a cash out. I was told that since my credit score was low 598-609-555 that no matter what I borrowed I would still have a pmi because my scores were low. Is this true? I thought that as long as you didn't owe more than 80% of the appraised or loan value you would not have a pmi. Not that it is based on your credit score. Can someone tell me the facts to pmi in a FHA loan.

  4. ANURAG Says:

    From July 14th 2008, the rules of FHA have changed and the MIP is now also based on the credit score.

  5. yanni raz Says:

    Today's Most Popular Fha Loans

    What is fha loans with bad credit ?

    Fha loans are the most popular consumer mortgage loans you can possibly have today.
    Also fha bad credit loans are done by the government, basically the government have created these loans years ago and it was actually very popular.
    Fha bad credit loans also called fha hud loans have their fha guidelines and fha requirement.
    So for you to get a consumer mortgage and an fha approval you need to know the guidelines.

    1.Fha fees- fha fees are not so much different than any other conventional mortgage loans you had in the past.
    The problem is that some of us that apply to have a consumer mortgage are being charged high points in conventional mortgage loans.
    If you will read the fha guidelines you will understand that with fha lending it's a much safer way to go because there are some restriction with the fha fees.
    2.Fha appraisal- fha appraisal is also not so different from a normal appraisal you will have to get done in a conventional mortgage.
    But here the appraiser that will appraise your home will have to be fha approved to get you an fha appraisal done.
    3.Fha conventional- fha conventional is not a normal term but some people are using this term for some reason.
    Fha conventional is not related to one another, fha is fha and conventional is conventional.
    4.Fha lenders- there are not a lot of fha lenders and fha brokers.
    A lot of people think that every mortgage broker can help them with their fha Home mortgage, no.
    Only a few Mortgage brokers out there are really fha approved, so before you make a decision about the next mortgage broker you will use make sure they're approved.
    5.Fha loan limits- the fha loan limits have changed recently. Until march of 2008 the fha limits were up to $417,000, because of states like California, New york and Florida the fha loan limits have changed to $729,000.
    The new loan limits will help many homeowners to refinance their homes and avoid foreclosure.
    6.Fha pmi- fha pmi is the mortgage insurance you required to pay.
    Please read the fha requirements, in conventional loans you will pay pmi only if your loan is more than 80% ltv.
    Since fha programs don't offer a second loan on your mortgage they will make you pay pmi instead, which is good because paying pmi is much better then a second loan.
    7.Fha rates- fha rates are much better then conventional interest rates.
    Conventional banks have a higher interest rates because they charge to the index of your loan a margin. Fha interest rates have no margin since the fha program is done by the government.
    Fha rates are lower then conventional rate loans.

    So again learn the fha guidelines and the fha requirements.
    now you will know the fha loan limits.
    1. you will probably have to pay fha pmi.
    3. The fha rates shouldn't be higher then conventional rate loans.
    Now go find fha lenders or an fha broker, get your refinance or mortgage done and save your home.

  6. paula Says:

    Your article was very helpful.What percentage of the loan amount is usually charged as PMI.I got a few quotes from lenders but they vary a lot in the MIP so I am confused.Thank you.

  7. Steve Says:

    There are lots of conflicting answers to the questions above. I am currently a mortgage professional and have been practicing for about 6 six years having worked at JPMorgan Chase and AIG. Before that I was a tax accountant for about 6 six years as well with Pricewaterhouse. I found it funny that many mortgage professionals do not fully understand FHA and conventional guidelines but still originate them.

    First of all... MIP is NOT dictated by credit score alone. MIP (associated with FHA loans) is a result of that person NOT qualifying for a conventional loan regardless of loan to value. Some very general examples are.....

    example 1: if a borrower has a credit score of 720 and loan to value of 75%, he should qualify for a conventional loan with no PMI/MIP and no up front MIP. These loans would be done through Fannie Mae or Freddie Mac.

    example 2: borrwer has 720 credit scores but loan to value is 95%. Good luck getting a conventional loan. Your credit score means nothing at this point. Mortgage is a risk based lending and even though your credit scores are high, the bank sees you as being risky as the guy with the 599 credit scores. He is now a FHA candidate. He will be charged 1.75% up-front MIP and a monthly MIP as well. Monthly MIP is charges minimum of five years and no guarantee that it will bw eliminated. You will need to prove after five years that your LTV is below 78%.

    Example 3: Borrower has 600 credit score and loan to value is 50%. Even thought the loan to value is very low, his credit score COULD prevent him from getting a conventional loan. You will need to have a mortgage professional run it through the system to get an approve-eligible. If it is determined that he is not eligible for a conventional, see example 2. You are paying up-front MIP and monthly MIP through FHA.

    There is no simple way to determine whether you qualify for conventional or FHA. The professional will need to examine all aspects of your credit report (payment history on mtgs and unsecured credit accounts), total amount of debts, and judgment records.

    Fair Issacs allows for almost unlimited mortgage inquiries within 2 months, so having a mortgage company pull your credit will not affect your scores like unsecured credit inquiries. Unsecured inquiries include inquiries for store credit and credit cards.

    There is no general formula that states that FHA rates are better than conventional. It all depends on the market and the available investors at a given time. These rates are all based on the US Treasury, so they will fluctuate daily. Depending on credit and LTV one will be a lot better than another. Conventional programs have many many add ons for credit risk. Meaning that even though you may qualify for a conventional, if your credit score is below 680, or if you take cash out, or if your LTV is 1% over 75%, you may see add ons of 1% or more on the par rate. Again, no simple formula. Your mortgage professional will need to determine this for you. A good professional who knows what he/she is talking about will run all examples and tell you why they recommends one program over the other. If they cannot, seek someone who does. This is your home you are talking about. FHA rates are generally set no matter what the situation is.

    Tax Deductions?? UPMIP is tax deductible only on a purchase. This is amortized over the life of the loan or 84 months which ever is shorter. See your tax professional for more details. UPMIP on a refinance is NOT deductible if you rolled this into your mortgage. You are already getting deductions for interest paid on this. The IRS will not let you double dip. Your auditor could give you more details and they have a lot of time to explain this to you.. their customer as they call it now.

    Monthly MIP is stated on your 1098 so this is pretty simple.

    Also, when refinancing, arm yourself with as much information as possible. Market rates are market rates. Remember even a big bank like JPMorgan Chase does not issue these rates as these loans are all insured through FHA, FNMA or FHLMC. If the going rate is 5%, and someone tells you that I can do the loan for 3%, but believe it. It's called bait and switch. Once you settle on a lender, you have to pay for an appraisal that was assigned by that lender or broker. Once you realize that you been lied to, that broker could hold that appraisal report and force you to pay for another one if you choose not to close with them. If doing FHA, they can hold that FHA case # and make your life a living nightmare. I am still surprised to find how many loan officers rely on this tactic to make money especially in a market regulated by FHA and FNMA. Remember.. when you ask people to lie to you about rates, eventually someone will lie to you.

    I hope this helped. If you would like to discuss your sitation in more precise detail, please feel free to call me. My work # is 877-684-6699 ext. 109 or email me at skim@mtg-now.com. Ask for Steve - Sr. Loan Officer.

  8. diana Says:

    I have been to 3 banks trying to refinance. Countrywide is where my loan originated. They now tell me it is Freddie Mac. They can't do anything because it is a conventional loan w/PMI. They say the Obama plan is in phase one and it doesn't include loans w/PMI. They also said a second phase is coming that will allow for loans with PMI.
    National City says my best bet is FHA. I understand about the PMI on FHA and the upfront PMI also. But...the mortgage officer swears that I can drop my PMI in 2 years and 78% yet his PMI schedule he sent me shows 10 years and it comes off itself.
    Huntington Bank says they can't help me because they can't do the Obama plan with a loan that is not theirs. Again, they say another phase is coming to possibly allow this type of loan. This mortgage officer says that if I do an FHA loan that it can't be dropped until it comes off itself in 10 years. Now how in the H is seomeone to figure all this out. One of these mortgage officers is under educated or lieing.

  9. Kathleen Says:

    I'm trying to refinance my condo. 3 years ago I bought it for 423,000 with 38% down payment. I have excellent credit and no additional debt. However, when I had it appraised, the appraisal came back abismally low at 280,000. So I'm in the 93% Loan to value range. I can't get a conventional refi at the going rate of 4.75 so it was suggested to me to go FHA with pmi. This still decreases my mortgage payment by $157 per month. I'm encouraged by reading that the PMI can come off in 5 years - but is this really true? Or am I stuck paying this PMI for the life of the loan?
    -- Thanks,

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