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Remove Your FHA Mortgage Insurance

Mortgage Insurance Is A Waste Of Your Hard Earned Money!

What Is It?
FHA Mortgage Insurance Premium (MIP) is a financial guaranty for FHA loans that helps reduce loss in the case of a default by the borrower. FHA acts as the insurer for a lender that services FHA loans.

When Can I Stop Paying FHA Mortgage Insurance?
There are two ways to remove your FHA mortgage insurance from your loan:
1) Refinance to a conventional loan without mortgage insurance.
2) Wait for automatic termination when the balance reduces to 78% compared to the original value of the property. Unfortunately, this does not take into account any of the property’s appreciation gained over the years. Making your normal 30 year payment, the time frame is approximately 11 years for the automatic termination. FHA loans obtained after June 3, 2013 have no mortgage insurance termination date and remains for the life of the loan.

The surest way to get rid of your mortgage insurance is to refinance to a conventional loan without mortgage insurance. The first step in this process is to verify the value of your home to see if you have gained enough equity to meet conventional loan requirements.  Go to for your Free Automated Home Valuation Report.

What Percent Is The Best Down Payment?

Deciding what down payment to put on a home is one the first decisions to decide when choosing a home loan. This determines the amount of money the borrower will have to part with, how much house a borrower can afford, and it also determines whether the borrower will have to pay monthly mortgage insurance, or upfront mortgage insurance.

Of course, your financial situation will be a big determining factor for which scenario you can choose.

A 3.5% down payment is the most common, especially among first time home buyers. It’s the smallest amount a borrower has to part with. However, when doing a 3.5% down payment with a FHA loan, the borrower will have added costs consisting of upfront mortgage insurance, which is added to the loan balance, as well as monthly mortgage insurance. This ultimately increases the monthly mortgage payment.

The other option is to go the conventional home loan route and parting with a minimum of 5% down. In order for this scenario, credit scores must be good and the home loan has to be under $417,000 according to Fannie Mae and Freddie Mac guidelines. Monthly mortgage insurance is still added to the loan, but it is significantly less than the 3.5% down payment.

A borrower can also put 10%-20% down with a conventional loan in order to avoid mortgage insurance altogether.

Now, keep in mind there is not “wrong” down payment. It is all based on your financial situation, what is available in your savings for a down payment, and how much house you can afford. The main goal is for the borrowers to understand the different loan options available and choosing what works best for their circumstances. Discuss these options with a mortgage broker for more personalized assistance based on your financial situation.

FHA is Increasing Their Fees in 2012

To all the homebuyers who are considering on waiting to purchase a home, you may want to think twice. Those who are going to purchase a home using an FHA loan, which is 3.5% down, are going to experience an increase in the upfront mortgage insurance premium as well as the annual premium.

Currently the upfront MIP is 1.00. Effective April 1, 2012, FHA is increasing the MIP by 75 basis points, making the new MIP 1.75.  

Currently the PMI is 1.15. Effective June 1, 2012, FHA is increasing the PMI by 35 basis points, making the new PMI 1.50.

How does this look when comparing it to a monthly payment?

Here’s a quick example. If you are purchasing a home for $200,000, you put 3.5% down ($7,000) & have a 4.0% interest rate you are looking at adding an additional $65 to your monthly payment.

The upfront MIP adds about $10 a month.

The annual premium adds about $55 a month.

This increase in insurance premiums may affect your buying power if you are set on a specific monthly payment range.

How can you avoid these fees?

You do not have to use an FHA loan. If you buy a home using a conventional loan, meaning you put between 5-20% down, you will not experience these fees. Keep in mind the requirements for a conventional loan are more strict, but you can always seek guidance from a professional mortgage specialist.

If you are doing an FHA streamline refinance, these increased FHA  fees will not affect your loan.

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