The Federal Housing Administration (FHA) announced a plan to cut the ongoing FHA Mortgage Insurance Premium (MIP) for FHA mortgages with mortgage terms greater than 15 years. The cut in MIP varies depending on the loan amount and loan-to-value (LTV) ratio with the ongoing FHA MIP for a 30 year mortgage with a loan amount of less than or equal to $625,000 and an LTV of greater than 95.00% being cut from 1.35% of the loan amount to .85% of the loan amount. The reduction in ongoing FHA MIP represents for a significant savings for borrowers seeking to buy a home through the FHA Home Loan Program. It is important to highlight that participants in the FHA program are still required to pay a one-time, up-front FHA MIP equal to 1.75% of the loan amount in addition to the now-reduced ongoing monthly FHA MIP, which is an extra cost on top of your mortgage payment. The changes to the ongoing FHA MIP go into effect January 26, 2015.
What it Means for Mortgage Borrowers
The move by the FHA is designed to help individuals with moderate incomes and individuals with limited funds buy homes by making the ongoing cost of an FHA mortgage more affordable. The FHA home loan program allows individuals to buy a home with a down payment as low as 3.5% of the property purchase price, making the program a potentially attractive alternative for first-time home buyers. The cost of the up-front and ongoing FHA MIP, however, made the program too expensive for many borrowers so reducing the ongoing MIP is a highly welcome development for prospective home buyers. The FHA’s decision to lower the ongoing FHA MIP makes the FHA Home Loan Program more affordable to borrowers and more competitive with the Fannie Mae MyCommunityMortgage Program which allows first-time home buyers to purchase homes with a down payment as low as 3.0% of the property purchase price. The Fannie Mae MyCommunityMortgage Program does not require an up-front MIP but does require the borrower to pay Private Mortgage Insurance (PMI) on a monthly basis, which is an extra cost on top of your mortgage payment.
FREEandCLEAR offers an extensive discussion of the FHA Home Loan Program including borrower qualification, the FHA Mortgage Insurance Premium (MIP) and FHA Mortgage Limits. Additionally, use our FHA Mortgage Qualification Calculator to determine what size FHA loan you may qualify for as well as the up-front and ongoing FHA MIP. FREEandCLEAR also offers a comprehensive review of the Fannie Mae MyCommunityMortgage Program. You can use the INTEREST RATES function on FREEandCLEAR to find lenders that offer the FHA Home Loan Program as well as the Fannie Mae MyCommunityMortgage Program.
The FREEandCLEAR Mortgage Expert