For new FHA loan - MIP is forever

For new FHA loans - Mortgage Insurance (MIP) is forever

Actually, it's only for those FHA loans that are initiated with an FHA case numbers after June 3, 2013.  So technically, you have about 35 days to start the process of applying for an FHA Loan. 

This is a major change in FHA policy on mortgage insurance.

This is a stark change from today's FHA policy which allows for FHA mortgage insurance cancellation after just 5 years.  The Federal Housing Administration (FHA) will reverse a policy that automatically canceled required MIP premium payments after loans reached 78 percent of their original value. Most FHA borrowers will now have to continue paying annual MIP premiums based on the unpaid principal balance for the life of their mortgage loan. The agency estimates it lost billions of dollars in MIP premium revenue on mortgages endorsed from 2010 through 2012 because of this cancellation policy.

FHA Mortgage Insurance Premiums : How It Works

The Federal Housing Administration is an insurer of mortgages and it collects premiums. FHA premiums are more commonly called mortgage insurance premiums or MIP and they're paid in two ways:

1.  The FHA assesses a 1.75% upfront mortgage insurance premium (UFMIP) at the time of closing. The amount is financed one-time only, and can be partially refunded for homeowners who choose to use the FHA Streamline Refinance Program.

2.  The FHA also assesses mortgage insurance known as annual MIP. Annual MIP is calculated once per year, then paid in twelve installments. Annual MIP rates vary by loan term and loan-to-value (LTV) :

15-year loan terms with loan-to-value over 90% : 0.70 percent annual MIP
15-year loan terms with loan-to-value under 90% : 0.45 percent annual MIP
30-year loan terms with loan-to-value over 95% : 1.35 percent annual MIP
30-year loan terms with loan-to-value under 95% : 1.30 percent annual MIP
Then, for FHA-insured mortgages for which the base loan balance exceeds $625,500, an additional assessment applies. Loans with a 15-year term or less add +0.25% in annual MIP, and loans with a term between 16-30 years add +0.20% to annual MIP.

Beginning June 3, 2013 FHA premiums are going to get more costly.  To get the best FHA mortgage loan possible, get your loan going before June 2013.

The Federal Housing Administration has made 6 changes to its mortgage insurance premiums in the last 6 years. Each has increased the short-term cost of using FHA-backed mortgages. The agency's next change, however, will change its long-term costs.

Here's what's changing.

Currently, the Federal Housing Administration requires homeowners to pay annual MIP so long as their loan-to-value is greater than 78%, where "value" is equal to the last known value of the home.

In addition, if the original mortgage term is greater than 15 years, at least 60 payments must have been made on the mortgage before FHA MIP can be automatically cancelled.

The new cancellation policy will be as follows :

Loans beginning at 90% LTV or less will pay annual MIP for 11 years.
Loans beginning at 90% LTV or more will pay annual MIP for the complete loan term.
This means that home buyers using the Federal Housing Administration's 3.5 percent downpayment program will pay annual mortgage insurance for the loan's full 30 years, regardless of whether the home appreciates to the point of having 22 percent equity or more.

With the new FHA rules, MIP is forever.