0

Because of my low savings, but high-income/high-credit-score scenario, I'm only able to get my first house by using an FHA loan (as far as I can tell.) I want to do a 3.5% down, 30-year loan for a house in the $500-600k range. I understand that the main draw back of FHA is the insurance(s) required.

According to the HUD website, FHA mortgage insurance exists because:

All Loan Terms (Greater than 15 years and less than or equal to 15 years):

LTV greater than 90% Annual MIP will be collected until the end of the loan term, or 30 years, whichever occurs first.

LTV less than or equal to 90% Annual MIP will be collected until the end of the loan term, or 11 years, whichever occurs first.

You also have to pay the 1.75% for any amount of loan at all LTVs.

I don't understand at which scale these percentages apply (yearly, monthly, entire loan?). I can figure out the mortgage payment, property taxes, and home owners insurance, but I need some help understanding how much the monthly insurance amount would cost, and how to end the need for the insurance either through refinancing, reaching these LTV benchmarks, etc.

2

You'll pay an up front premium of 1.75% (of the loan value) when you get the mortgage (added to your loan amount). From there, the annual mortgage insurance premium is variable, currently 0.8%-1.05% per FHA website:

Base Loan Amount    LTV       Annual MIP
≤ $625,500           ≤ 95%     80 bps (0.80%)
≤ $625,500           > 95%     85 bps (0.85%)
>$625,500            ≤ 95%     100 bps (1.00%)
> $625,500           > 95%     105 bps (1.05%)

So, currently for a loan of 500-600k at 3.5% down you'd pay 0.85% (annually 0.85%, but divided evenly into your monthly payments). You multiply this rate by the average principal balance over the next 12 months.

For a new FHA loan with less than 10% down, you do not qualify for MIP cancellation, you'd have to refinance to a conventional loan to get away from it. Closing costs on a refinance can be substantial, and interest rates could go up between now and then.

There are conventional loans that require 5% down that will similarly saddle you with mortgage insurance (PMI), but some lenders will remove it with an appraisal showing 20% equity, no re-finance required. I did this on my first house, had to pay a few hundred for an appraisal so waited until I was very confident of the value, but due to wild price growth in my area I was at 20% equity in something like 14-16 months with a 5% down payment.

Waiting and saving up a larger down payment and/or focusing on a less expensive house is typically what I would advise, but for some people in high-growth areas prices are rising faster than they can save so waiting doesn't help.

  • Thanks. This make some of the figures on tools like this make more sense: whatsmypayment.com/FHA . My area is having explosive growth so I think getting in ASAP with FHA is best. – JacobIRR Feb 3 '18 at 21:35

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.