FHA Mortgage Insurance.. Can I cancel it??

By
Mortgage and Lending with 1st Mariner Bank NMLS# 1119449

FHA loans and mortgage insurance. If I buy a house this month, can I cancel it after I gain equity in the home? 

Unfortunately, if you purchased the home after June 2013, you will follow under these rules: 

Loans beginning at 10% down or more will pay annual MIP for 11 years.
Loans beginning at 10% down or less will pay annual MIP for the complete loan term.

This means that home buyers using FHA's 3.5 percent down payment 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 FHA rules, MIP is forever.

So why get an FHA loan?? Well for one FHA is more lenient when it comes to credit score, job histories, down payment amount and credit history. Conventional financing is much more strict.

The good news? You can always try to refinance out of your FHA later when your personal situation improves.

 

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Rainer
156,926
Elizabeth Bouchard
Long & Foster Realtors - Arlington, VA
Associate Broker in Northern Virginia

We didn't use FHA loans in our market area for many years because the maximum loan amount wouldn't buy much in our area.  Then their maximum went up and as conventional loans for high cost areas went back down, FHA was the primary financing.  Now with the higher mortgage insurance premiums and the fact they will stay with the borrower for the life of the loan it is becoming less attractive again.  Times change.

Sep 25, 2013 12:14 PM #1
Rainmaker
403,013
Bahman Davani, CM at Texas Five Star Realty, Plano, TX (214) 457-7055
Texas Five Star Realty, Plano Texas - Frisco, TX
Homes for Sale in Plano, Frisco, Prosper, Allen TX

As Elizabeth said, with the higher mortgage insurance premiums (increased 10 base points) and the fact they will stay with the borrower for the life of the loan, FHA is becoming less attractive. One additional selling point for FHA insured loan is "Assumablity and Transferablity", it means later later when the interest rates are much higher than todays's (e.g., 8% vs. 4.5%), the new buyer could assume the same rate if they are qualifeid.

Sep 25, 2013 08:55 PM #2
Rainer
284,468
Steven Cook
No Longer Processing Mortgages. - Tacoma, WA

The one thing a lot of people still don't recognize on the FHA loans with the "forever MI" is that our clients have been taught over and over to compare the APR -- and the FHA APR is now looking horrible compared to conventional.  For example, I ran one illustration recently - and though the stated rate for the FHA was over .5% lower than the conventional, the APR on the FHA was more than a full point higher.

Sep 26, 2013 03:29 AM #3
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Rainer
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Diane Marletto

FHA, VA, USDA, Conventional & 1st Time Buyer Loans
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