What is an FHA Mortgage Loan?
Before we get to the great news about FHA MIP, let's cover what an FHA loan is. An FHA loan is a mortgage loan insured by the Federal Housing Administration (FHA). Frequently, an FHA loan is a great alternative for individuals who may not qualify for a conventional mortgage loan due to, say, a lower credit score, or little funds for a downpayment. FHA loan requirements are less strict in an attempt to give as many people as possible the opportunity to purchase a home. The trade-off of going the FHA route is usually a higher interest rate, and this little thing called Mortgage Insurance. FHA loans also require that the property meet specific guidelines prior to FHA loan consideration. See the appraisal guidelines HERE.
What is Mortgage Insurance?
Mortgage insurance protects the LENDER if the borrower defaults on repayment of their loan. In terms of conventional loans, it's typically called Private Mortgage Insurance (PMI) and rates vary depending on factors like downpayment amount and the borrower's credit score. Mortgage insurance is a requirement for an FHA loan. Period. There are two kinds of FHA mortgage premiums which are required:
- Upfront Mortgage Insurance Premium (MIP) - This is a one-time premium payment which can be paid upfront at closing or it can be rolled into the mortgage loan amount.
- Annual Mortgage Insurance Premium (MIP) - This premium is paid monthly (figured into your monthly mortgage payment)
Drop in Annual MIP
The Federal Housing Administration just announced That they are dropping rates on Annual MIP from .85% to 0.60% in an attempt to enable more individuals to purchase homes.
According to William E. Brown, National Association of Realtors President, “This is a question of simple math. Every time we cut the cost of mortgage insurance it means more borrowers meet the debt-to-income ratio required to purchase a home. It follows that dropping mortgage insurance premiums today will mean a whole lot more responsible borrowers are suddenly eligible to purchase a home through FHA. That puts more money in the fund to protect taxpayers, and it puts more families in homes so they can live out the American dream.” (www.nar.realtor)
This cut applies to new mortgages with a closing or disbursement date on or after January 27, 2017.
Read the U.S. Department of Housing and Urban Development (HUD) press release HERE.