FHA MIP vs Conventional PMI -- What to look for & the meanings -- Part 2

By
Mortgage and Lending with Social Media - Infinity Home Mortgage Company, Inc

 

Mortgage insurance, may it be FHA or conventional, is not as confusing as it may seem. Especially if you have a qualified mortgage consultant that knows the ins and outs of mortgage insurance.  

 

A quick glimpse of the different meanings :

You have upfront MIP and annual MIP. As it stands now, until they change this to risk base pricing in the next few months, your upfront MIP is 1.5% of the base loan amount. Meaning, if you borrow $100,000 (base loan amount), your upfront MIP will be $1,500 and your new loan amount would end up being $101,500.

In regards to your annual MIP which is paid monthly is sometimes call MMI, monthly mortgage insurance. This is the easy part. No matter how much you put down, your annual MI is .5 percent of the base loan amount, which in my example is $100,000. You would take 5% and multiply it to the base loan amount which would be $500 annually. Then divide it by 12 months and this is your monthly mortgage insurance. = $41.67 per month as your MI.

Some basic rules to remember in regards to annual MIP. (which is really monthly MI when it's all said and done with)

  1. If your new loan term is great than 15 years, your upfront MIP is 1.5%, as stated above. And your annual MI is .50. Your annual MI will be terminated once you reach 78% LTV either by normal amortization or by making additional principal payments. But in order to cancel it by the 2nd method, you need to get a knew appraisal. In either case, MMI stays on for 5 years no matter what, even if you were to put down 20%.
  2. If your new loan term is 15 years or less, your upfront MIP is still 1.5%, but your MMI would only be .25 of the base loan amount. If you put 10% or more down on the 15 year scenario, then you would have no annual MI. 
  3. The 5 year rule for annual MI would not apply for terms of 15 years or less. 

 

 

Now, with the changing guidelines of Fannie Mae and Freddie Mac, it's even more important to understand if you put less than 25% down and/or your credit score is less than 680, that you will be subject to extra add ons in regards to points. I compared these changes to FHA and showed you which avenues would be better, depending on your situation.   Will Conventional loans be just like the Subprime mess?

 

 

Conclusion :  Just to give you an idea if you put 5% down on either a FHA mortgage or a conventional mortgage, here is your difference in monthly mortgage insurance. For a FHA, you MMI would still only be .50. If you went conventionally, your MMI would be .78 of the loan amount.  Now, don't forget that you will have upfront MIP on a FHA loan. But then again, your ad ons would be much higher on the conventional loan since you would be putting 5% down.   Does this now sound confusing?  Yes, it very well could, hence why you would need the help of a true mortgage professional that would understand all of these options.  Helping you make the correct decision and not what would be easier for you.

 

 

Mortgage Insurance Series : 

 

 

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For more information on FHA loans, please go to this link. The FHA Expert You can also go to this group : The FHA Mortgage Group

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Copyright © 2008  by Jeff Belonger

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For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!

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Copyright © 2011 by Jeff Belonger of Infinity Home Mortgage Company, Inc

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Rainmaker
468,306
Alexander Harb
Knights Investing - Mesquite, TX
Dallas, Texas Real Estate Investing

I am so glad I read your blog, Jeff...I am in the process of getting my 612 FICO score into the 700s and maybe even higher...then I will buy my 1st home....

GREAT post!!

 

Jan 12, 2008 05:36 PM #1
Rainer
168,035
Matthew J Blum - (retired from the business)
Palm Beach Gardens, FL
Jeff, This is a great post! Thank you for explaining this to the consumer and anyone else who wants to listen.
Jan 13, 2008 01:45 AM #2
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

ALEXANDER.....  in all honesty, there is nothing wrong with going FHA, especially now. In all honesty, think about these two points. ...actually, 3.  

  • The rates are the lowest that they have been in a yr to 2 years.
  • Home values are done in Florida considerably.
  • And who knows how long it would take you to get your credit score up 70pts or so.

Now, these are my opinions. But now is the time to buy if you can. What's great about FHA is that the rates are  exactly the same as if you went conventional with 680 or higher scores. Even if you wanted to put 20% down. Just food for thought...because if you could buy now, why take that chance even 6 months to a year from now. Depending on your price, the money that you would need for that same rate could be $1,000 higher or that payment could be $50 more. It all adds up.

 

MATT.....   thanks for that polite compliment.  If you get a chance, look at Part 1 and the information that is in there about other lenders web sites. Knowing you, it might make your toes curl.  Thanks for stopping by.

 

Jan 13, 2008 02:25 AM #3
Rainmaker
826,028
Fran Gaspari
Patriot Land Transfer, Inc. - Limerick, PA
"The Title Man" - Title Insurance - PA & NJ

Jeff,

Great post...part 2...when an FHA loan is paid off  early, is there any refund of the MIP? Thanks,   Fran

Jan 13, 2008 03:56 AM #4
Rainmaker
468,306
Alexander Harb
Knights Investing - Mesquite, TX
Dallas, Texas Real Estate Investing

I can get a condo and I get a 12% commision I can plow right into the deal on paper...will that help me do it?? PLUS they will kick in 4.5% for closing costs........

That is over $15,000 down plus the seller is kicking in the closing costs on a condo selling for around $130-160K.......

I have a 612 FICO score and need a no doc loan because I am a sever at Perkins in addition to being an agent.....

Kan u du this? THANKS for the e-mail...I have contacted several loan officers and you are the only one that has even tried to help in any way....

Let mee noww..... (Do ya think I need speel chek on this?  hehehehe)

;-)

Jan 16, 2008 09:57 PM #5
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Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

FRAN.....  yes, if it's paid off less than 3 years. There is a certain percentage, depending when it's paid off, that you would receive off of the upfront mortgage insurance.  Thanks for the compliment.

ALEXANDER.....     yes, this can be done. And I am not sure if the property fell apart, because I did reply back to you.  thanks... yes, the commission part can be done also.

 

Jun 04, 2008 02:09 AM #6
Rainer
56,130
-- Casey Brischle
Columbia Bank - Spokane, WA
Spokane Home Loan Mortgage Professional

Jeff,

Great series here.  I enjoyed reading through it.  I knew most of it, but you explaining it the way you did, opened my eyes a little bit as well.  Thanks

Jun 07, 2008 04:52 PM #7
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