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 http://www.MortgageInsuranceRemoval.com for your Free Automated Home Valuation Report.
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.
In our previous blog post, Payroll Tax Holiday Affecting Homebuyers, we discussed the new premium mortgage insurance fees that got passed into law in December 2011.
Those fees are in place to finance the government’s tax break that will end up costing $33 billion. The tax break will be financed by increased the mortgage insurance on home purchases starting this year.
As stated in our previous article, “This means on average the monthly mortgage payments will be raised by as much as $15 on mortgages of $210,000; however, it will vary.”
Earlier we stressed the importance of purchasing a home sooner than later so that these increased fees will not be added to your mortgage. The government has not yet given a specific date that these fees will be implement. So as always, the moment we find out anything we will provide the information on our blog.
The only way you will be exempt from the increased mortgage insurance is if your loan is locked and in process before the Payroll Tax Extensions is implemented. Obviously, if you currently already own a home, these fees are not directed towards you. It is specifically only for new homebuyers.
If you are concerned about being affected by these new loan fees, then your best bet is to get a rate quote now and get started on your home purchase as soon as possible.