September 26, 2014
A reader asks, “I am purchasing a second home using a FHA loan. Why is it necessary to pay for FHA insurance for the length of the loan it is a 30 year fixed mortgage?”
While we can’t speculate what the FHA/HUD motivation for changing the FHA MIP requirement for 30 mortgages, we can reiterate FHA loan policy on the matter, which changed back in January 2013.
In a Mortgagee Letter (FHA ML 2013-04) FHA loan policy for mortgage insurance premiums changed to require MIP payments for the duration of a 30-year FHA loan. According to the FHA official site:
“For loans with FHA case numbers assigned on or after June 3, 2013, FHA will collect the annual MIP for the maximum duration permitted under statute. See 12 U.S.C. § 1709(c)(2)(B).”
“For all mortgages regardless of their amortization terms, any mortgage involving an original principal obligation (excluding financed Up-Front MIP (UFMIP) less than or equal to 90 percent LTV, the annual MIP will be assessed until the end of the mortgage term or for the first 11 years of the mortgage term, whichever occurs first.”
Furthermore, the FHA mortgagee letter adds that for any FHA mortgage principal with a loan-to-value greater than 90%, “FHA will assess the annual MIP until the end of the mortgage term or for the first 30 years of the term, whichever occurs first.” That 90% LTV calculation omits the amount of any financed Up Front Mortgage Insurance Premium.
The FHA official site adds, “FHA calculates LTV as a percentage by dividing the loan amount (prior to the financing of any UFMIP) by the lesser of the purchase price (if applicable) or the appraised value of the home. For streamline refinances without appraisals, FHA uses the original appraised value of the property to calculate the LTV.”
The FHA Mortgagee Letter also announced increased MIP premiums for all FHA forward mortgages as previously announced, “except single family forward streamline refinance transactions that are refinancing existing FHA loans that were endorsed on or before May 31, 2009; the rate for those streamline transactions remains at the level announced in ML 2012-4.”
Borrowers with questions on the FHA mortgage insurance payment requirement, including whether or not their FHA loan is affected, should discuss their specific situation with the lender or contact the FHA directly by calling 1-800 CALL FHA.
Do you have questions about FHA home loans? Ask us in the comments section.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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