FHA mortgage insurance premium rates have changed significantly just this past year. This is mostly due to the fact that the insurance reserves have been reaching their highest totals expected this year. Which enables the FHA to pass these potential savings on to home buyers. The higher reserves are usually because of better performance on loan payments, which makes it possible to drop rates down. The rates seen in today’s mortgage market are at a record breaking low, making FHA loans the best options for home buyers.
The FHA was started in order to save homeowners from their exceptionally high-interest rates and save them money by lowering the down payment requirements. The FHA was designed for one reason, to make people homeowners. The FHA was created to ensure that every loan that the bank offered was insured by the FHA, this made it easier for banks to provide more loans with less risk.
What Rates Changed
FHA mortgage insurance premium rates or MIP rates were so low for so many years, but after the crisis in 2008, the FHA was forced to increase their rates rather quickly and continue to do so throughout the life of the loan, up to five times. This was an effort to replenish the reserve funds that were lost due to the high number of risky loans that were offered. The FHA had to dish out much more money than anticipated in order to be true to their guarantee.
This expense, however, was passed down to future FHA borrowers. This increase continued all the way into 2013 until the FHA had to withdraw money from the US Treasury in order to stay faithful to their guarantee. Ever since that buyout from the US Treasury, FHA home loans now have stricter guidelines, but better lending agreements. This means the FHA has gotten back on their feet and can continue to offer lower MIP rates.
The history of Mortgage Insurance Premium Rates
FHA MIP rates have changed dramatically throughout the recent years. Before the crisis in 2008, rates were considered reasonable and upfront MIP rates were only 1.5% and an annual MIP rate was 0.55%. Following the crisis in 2008, the rates increased drastically. The timeline is as follows:
- Oct 2008: Upfront MIP Rates increased to 1.75%
- Apr 2010: Upfront MIP Rates increased to 2.25%
- Oct 2010: Upfront MIP rates DECREASED to 1.0%
- Oct 2010: Annual MIP increased to 0.9%
- Apr 2011: Annual MIP increased to 1.15%
- Apr 2012: Upfront MIP increased to 1.75%
- Apr 2012: Annual MIP increased to 1.25%
- Apr 2013: Annual MIP increased to 1.35%
- Jan 2015: Annual MIP DECREASED to 0.85%
As the FHA rates fluctuated, the PMI either annual or upfront, was altered as well as other insurance in order to adjust the total amount of money the MIP would actually cost borrowers.
Upfront Mortgage Insurance Premiums
Upfront mortgage insurance is the fees due at the closing of your loan. Currently, the rate is set at 1.75% of the loan amount. This can be paid either with cash at the time of closing or can be rolled into your loan. Upfront mortgage insurance costs are not included in your LTV ratios, which makes it very easy to just roll your closing costs into your loan. For example, a house that costs $250K the upfront cost would be around $4375 which can be a lot of money to most people, on top of 3.5% down payment that all FHA loans require. This can ultimately alter the determined LTV on your loan.
Annual Mortgage Insurance
The FHA mortgage insurance premium rates for annual mortgage insurance has finally dropped for the first time in years to 0.85% down from 1.35% this served as significant savings for many homebuyers. The difference in the monthly payments made it easier to afford and more and more people started using FHA financing. Annual MIP is paid on a monthly basis, even though it’s configured yearly.
If you are using an FHA streamline refinance, you could be eligible for an upfront MIP refund. If you obtained your loan within the last 3 years, you can be eligible for a prorated refund amount of your upfront mortgage insurance. This is money that can go towards your refinance. The amount you receive for your refund will depend on when your original FHA loan originated. If you obtained an FHA home loan before June 2009 you are considered 1st category, if you closed after June 2009 you’re considered 2nd category. These particular MIP rates pertain to a home loan for an amount of a down payment less than 5%. Loans below 95% LTV will usually have a MIP rate of 0.80%
1st category means your new FHA MIP rates are .01% upfront and .55% annually. 2nd category means your new FHA MIP rates are 1.75% upfront and 0.85% annually.
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