July 15, 2013
A reader asks, “If a buyer is making a 25% down payment on a home purchase, is the mortgage insurance premium mandatory? This down payment is for a home sale that is appraised for the sale price or higher.”
FHA loan rules for mortgage insurance premiums changed in early 2013. There were several changes, but one of them was to eliminate the exemption for mortgage insurance for those making a large down payment. According to the FHA/HUD official site, FHA mortgagee letter 2013-04 “rescinds the automatic cancellation of the annual MIP collection” announced in previous mortgagee letters (ML) and also “rescinds ML 2011-35, under which mortgages with terms of 15 years or less and LTVs of less than or equal to 78 percent at time of origination were exempt from the annual MIP.”
Under the new rules, there are increases to all mortgage insurance premiums, “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.”
What do new FHA loan rules now say about mortgage insurance premiums? According to FHA mortgagee letter 2013-04, “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).” Additionally:
“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 Loan-to-Value (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.”
“For any mortgage involving an original principal obligation (excluding financed UFMIP) with an LTV greater than 90 percent, 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.”
“Note: 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.”
For more information on these policies, speak to your loan officer. You can also ask us a question in the comments section about FHA loan policies or refinance loan policies.
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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