Clarification of FHA MIP

With the recent reduction of the mortgage insurance premiums ("MIP") by FHA, there will most likely be more demand for FHA loan products and some general statements that have been made in the past need to be clarified.  In particular there is a general statement going around that FHA MIP is for the life of the loan.  That is not a completely correct statement.

I previously saw an article that indicated that MIP was not in fact for the life of the loan and it caught my attention.  The article however, indicated that you can always refinance out of an FHA loan to end the payments of MIP.  Yes, it is true that you can refinance out of an FHA loan, I was disappointed as I was expecting a bit more.

On Thursday past I saw an article on themortgagereports.com entitled "Why You Won’t Pay FHA Mortgage Insurance Premiums (MIP) For The Rest Of Your Life".  This article contained the explanation that I was looking for previously.  There are circumstances under which MIP is NOT for the life of the loan.  With FHA's willingness to insure loans to borrowers who have less than stellar credit, but who might have more than usual equity, with the lower MIPs that will go into effect on 01.26.2015, FHA insured loans should not be overlooked.

FHA does not require MIP for the life of the loan except if the INITIAL LTV is greater than 90%, regardless of whether the loan term is more or less than 15 years.  For loans with an INITIAL LTV equal to or less than than 90%, FHA only requires MIP for 11 years.

There are advantages to FHA products, such as greater seller concessions, 6% of the price as opposed to 3% for most conventional loans.  FHA as I indicated, will insure loans to borrowers who have credit scores as low as 580.  Thirdly, FHA rates are usually lower than Fannie and Freddie rates.

Yes, the Upfront MIP is still a steep 1.75% of the loan amount, but there is the advantage of being able to deduct mortgage insurance premiums on your federal tax return, at least for another year, as if it were additional interest.  And, if you have an existing FHA loan and are in a position to refinance out of it and into another FHA loan there is a streamlined process for that that might enable you to avoid MIP if your property has appreciated sufficiently in value with the returning of the housing market.  And, yes, as the original article pointed out, refinancing into a conventional loan is always possible, especially with Mortgage Interest Rates being down to 3.66%.  Anyone with a mortgage loan with a rate greater than 4.50% should really consider refinancing to a lower rate. They would be negligent to not at least explore the possibility.  Give me a call. RTFG would be happy to help anyone refinance to a lower rate in any of the states in which we do business.