If you want FHA financing, you’ll have to pay FHA mortgage insurance. This insurance protects the lender should you default on the loan. The FHA requires both upfront and annual mortgage insurance for each of its loans. It doesn’t matter how much you put down on the home or how much you owe, you will always pay mortgage insurance on it.
The Upfront Mortgage Insurance
The first mortgage insurance you’ll pay when you take out an FHA loan is the upfront mortgage insurance. Today, this premium is 1.75% of your loan amount. You pay this amount at the closing unless you have the room in the home’s value to wrap it into the loan.
You pay this upfront mortgage insurance every time that you take out an FHA loan. This includes when you use the FHA streamline refinance program. The only difference with the FHA streamline refinance is that you can get a refund on the upfront mortgage insurance you paid on your original FHA loan if you refinance within the first three years of having the loan.
The FHA provides a refund based on the length of time that has passed since you took out your FHA loan. You can refinance your FHA loan as soon as you’ve made six payments on it. If you do refinance at that point, you’ll receive the largest refund. The amount of your refund then decreases with every passing month until you hit 36 months. There is no more refund after 36 months.
The Annual Mortgage Insurance
The FHA also charges annual mortgage insurance. While this is an annual charge, your lender will break the payment up by charging you 1/12th of the amount every month. Right now, the FHA charges 0.85% of the loan amount for most loans. This charge is for borrowers that put down less than 5% on the home.
If you put more than 5% down on an FHA loan, your annual mortgage insurance will decrease. If you make a down payment greater than 5%, you will pay 0.80% of the loan amount in annual mortgage insurance. These figures are both for 30-year loans.
If you take out a 15-year FHA loan, you’ll pay 0.70% for down payments less than 10%. If you make a down payment greater than 10%, you’ll pay just 0.45% in mortgage insurance.
The FHA mortgage insurance may seem like a pain, but it’s there to keep the FHA in business. Without the insurance, the FHA wouldn’t be able to guarantee the large number of loans that they guarantee. This would make it harder for you to get a loan with flexible guidelines and a small down payment of just 3.5% of the purchase price of the home.Click to See the Latest Mortgage Rates»