Last updated on March 4th, 2024 at 11:22 pm
FHA Mortgage Insurance Premium Chart: FHA mortgage insurance has two parts: upfront 1.75% and annual rate based on loan size and down payment (90% LTV: 0.50%, 95% LTV: 0.55%). [HUD (.gov)]
When it comes to purchasing a home, many people turn to FHA loans for their flexibility and affordability. However, it’s important to understand the costs associated with these loans, including the FHA Mortgage Insurance Premium (MIP). In this article, we will delve into the details of the FHA Mortgage Insurance Premium Chart, explaining how it works and what it means for borrowers.
What is FHA Mortgage Insurance?
FHA mortgage insurance is a type of insurance that protects lenders in case the borrower defaults on their loan. This insurance is required for all FHA loans and is paid by the borrower. It is important to note that FHA mortgage insurance is different from homeowners insurance, which protects the borrower’s property.
The Two Parts of FHA Mortgage Insurance
The FHA Mortgage Insurance Premium is divided into two parts: the upfront premium and the annual premium. Let’s take a closer look at each of these components:
1. Upfront Premium
The upfront premium is a one-time payment that is due at the time of closing. Currently, the upfront premium is set at 1.75% of the total loan amount. For example, if you are taking out an FHA loan for $200,000, the upfront premium would be $3,500. This amount can be paid in cash or rolled into the loan.
2. Annual Premium
In addition to the upfront premium, borrowers are also required to pay an annual premium. The annual premium is calculated based on the loan size and the down payment. The current rates for the annual premium are as follows:
- For loans with a loan-to-value (LTV) ratio of 90% or less, the annual premium is 0.50% of the loan amount.
- For loans with an LTV ratio above 90% (up to 95%), the annual premium is 0.55% of the loan amount.
For example, if you have an FHA loan of $200,000 with a down payment of 3.5% (an LTV ratio of 96.5%), your annual premium would be $1,100 ($200,000 x 0.55%). The annual premium is divided into monthly payments and added to your mortgage payment.
How to Calculate FHA Mortgage Insurance Premium
Calculating the FHA Mortgage Insurance Premium can be a bit complex, as it involves multiple factors such as loan size, down payment, and LTV ratio. However, you can use the following steps as a guide:
- Calculate the upfront premium by multiplying the loan amount by 1.75%. For example, if your loan amount is $200,000, the upfront premium would be $3,500.
- Calculate the annual premium by multiplying the loan amount by the appropriate rate (0.50% or 0.55%). For example, if your loan amount is $200,000 and your LTV ratio is 96.5%, the annual premium would be $1,100.
- Divide the annual premium by 12 to get the monthly premium. In this example, the monthly premium would be approximately $91.67 ($1,100 / 12).
It’s important to note that the FHA Mortgage Insurance Premium is subject to change. The rates mentioned in this article are accurate as of the time of writing, but it’s always a good idea to check with the Department of Housing and Urban Development (HUD) for the most up-to-date information.
Why is FHA Mortgage Insurance Premium Required?
The FHA Mortgage Insurance Premium is required to protect lenders in case the borrower defaults on their loan. Unlike conventional loans, FHA loans have more lenient credit requirements and allow borrowers to make a lower down payment. The Mortgage Insurance Premium helps offset the higher risk associated with these factors, making it possible for more people to qualify for FHA loans.
Conclusion
Understanding the FHA Mortgage Insurance Premium Chart is essential for anyone considering an FHA loan. By knowing the upfront and annual premiums, borrowers can better calculate the total cost of their loan and make an informed decision. Remember to consult with a mortgage professional for personalized advice and to stay updated on any changes to the FHA Mortgage Insurance Premium rates.