How To Remove The Fha Pmi

By Sean A. Kelly

If you are looking for a mortgage loan but you don’t have the 20-percent down payment, you are required to purchase a Private Mortgage Insurance (PMI). The PMI protects the lender in case of a default on the loan. One of the providers of PMI is the Federal Housing Administration (FHA). The FHA is part of the U.S. Department of Housing & Urban Development (HUD) and also the largest government insurer of mortgages. The FHA PMI is not called PMI but referred to as MIP (Mortgage Insurance Premium).

From a consumer’s standpoint it is still often called the FHA PMI because it works like the PMI and most people are familiar with that term. However there are some key differences between the PMI and the FHA MIP.

Removal

The Homeowner’s Protection Act of 1998 provides automatic cancellation of PMI once a homeowner has reached 22 percent equity in his home based on the original purchase price and the homeowner has been current on payments for at least an entire year. In addition, the homeowner can request to remove the PMI once their equity has reached 20 percent and they fulfill certain requirements set by the lenders. Unlike the PMI, the FHA MIP is mandatory for the first five years of the loan with terms of more than 15 years even if the homeowner has reached the 22 percent equity.

Upfront fees

The standard PMI does not charge any upfront fees. For the FHA MIP, there is an upfront mortgage insurance fee in addition to the monthly insurance charge. As of October 5, 2010, the upfront mortgage insurance fee is 1 percent on the loan amount only, not on the total selling pricing of the home. This fee is usually included in the loan and you pay it over the life of the loan.

Rate

PMI rates do vary depending on the lenders. But it is usually 0.5 percent of the loan amount per year, divided over 12 months. The FHA MIP is mandated at 0.5 percent of the loan amount per year, divided over 12 months.

When you take up an FHA mortgage with less than 20 percent down payment the loan is inclusive of the MIP. You only need to pay a 3.5 percent down payment. The MIP will be calculated based on the balance of 96.5 percent loan-to-value amount. In addition, the 3 percent down payment can be a gift, a family loan, or received through an organization. Most other lenders require that you save the down payment yourself, but FHA recognizes that saving 20% can take many years.

The FHA doesn’t make loans directly. You need to contact an FHA-approved lender to apply for a loan. FHA offers several types of loans including fixed-rate loans, five adjustable-rate loans, rehabilitation loans, and loans for buying a home on an Indian Reservation. The one that most people are familiar with is the 30-year fixed rate loan with a stable interest rate and stable payments for the entire term. It is highly recommended for people who plan to stay in the home for the long-term.

You may be eligible for an FHA loan if you are a legal resident of the US looking for a primary residence. You need to have a social security number and be of legal age to sign a mortgage contract. In addition, you must also meet specific underwriting standards for the FHA mortgage program you’re applying to.

FHA programs have helped millions of home buyers buy new homes. It is a powerful tool to help younger and first time buyers qualify for a home loan. You can find out more from any of the FHA-approved lenders to see which program is the best for you.

About the Author:

fha pmifha mortgagefha loan

Source:

isnare.com

Permanent Link:

isnare.com/?aid=710471&ca=Finances