tired of paying fha mortgage premiums

Tired of PayingFHA Mortgage

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FHA loans are a great way for potentialhomeowners to obtain the home they havealways wanted, but they often come with aprice – MIP Mortgage Insurance Premium. Thismortgage insurance can be very expensive,placing a burden on homeowners in the future.This mortgage insurance is how the FHA is ableto back up the millions of loans that they offersupport for every year, but what manyhomeowners do not realize is that thesepremiums do not need to be paid forever.



How is FHA MIP Used?

First, let’s look at what the FHA MIP is used for interms of insuring loans. The FHA does not providethe funding for loans. What they do provide isinsurance to the banks that provide funding forloans that meet FHA’s standards. The FHA is thereto cover the bank should an FHA mortgage holderdefault on their loan. Since the FHA is self-funded,the funds that they use to cover defaulted loanscomes from the mortgage insurance premiums thatFHA homeowners pay, both up front when the loancloses as well as throughout the life of the loan.



What is the Cost of MIP?

MIP, unlike PMI, otherwise known as PremiumMortgage Insurance and is charged on aconventional loan, does not decrease despite havinga higher amount of equity in the home. Whether youhave 5 percent equity or 10 percent equity, your MIPwill be the same throughout the life of the loan, upto a specified time. In a conventional loan, however,your PMI will automatically cancel once you reach20 percent equity.



The amount of MIP that you will pay isbased on the following characteristics:

Loan term, whether 15 or 30-year

Loan-to-value ratio, the differences varydepending on the length of your term – for a 15-year loan, LTV’s over 90% have a higher MIP and fora 30-year loan, LTV’s over 95% have a higher MIP



When Does MIP End?

There is an end in sight for MIP, but it might not be thelength of time that you would prefer. For a 30-year loan,your loan-to-value ratio must be at or below 78 percent incombination with the need to have paid mortgageinsurance premiums for the last consecutive 60 months.The same is true for a 15-year loan, with the exception ofthe need for 60 consecutive payments of mortgageinsurance premiums. It could take a significant amount oftime to reach 78 loan-to-value ratio in your home,especially since the appraised value that is typically usedis the appraisal that was performed when you firstpurchased the home.



Alternatives to End MIP

One of the most common ways to put an end to MIPpayments is to refinance your loan into a conventionalloan. If you have at least 5 percent equity in the homeand a good credit history, it could be worth the time tosee if you qualify for a conventional loan. Not only aremortgage insurance premiums cancelled at 80 percentloan-to-value ratio in conventional loans, but thepremiums are also lower the higher your equity in thehome is at the time of obtaining the loan.



While an FHA loan might help you purchase thehome that you have always wanted withoutrequiring a down payment, in the long run it mightbe more costly for you. It is worth trying to qualifyfor a conventional loan once you have at least 5percent equity in the home. This will allow you tosave more money on your monthly payments oreven pay higher amounts to the principal of the loan,paying the mortgage down faster than you wouldwith an FHA loan.



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Justin McHood is Americas MortgageCommentator and has been providing

Mortgage commentary for over 10 years.

INFORMATION PROVIDED BY: JUSTIN MCHOOD

MORTGAGE COMMENTATOR

Information Originally Published: January 25, 2015BLOWNMORTGAGE.COM


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