If you are thinking about buying a home, an FHA home loan might be the right program for you. Mortgage Insurance Premium is a component of FHA home loans that you will want to know about if you decide to go with the FHA loan program. Below, we answer some common questions that you might have about Mortgage Insurance Premium.
What is Mortgage Insurance Premium?
For FHA loans, Mortgage Insurance Premium, or MIP, works a little differently than with other loan programs. MIP is a fee that is charged to borrowers on every FHA transaction regardless of how much money you put down. There is an upfront MIP, and a monthly MIP that FHA charges. The amount of Mortgage Insurance Premium you pay depends on the purchase price of the home you are buying and the amount of the loan you are seeking.
Is MIP Required on FHA Loans?
Mortgage Insurance Premium is required on all FHA loans. There are two Mortgage Insurance Premiums, one you pay upfront at closing and the other is included in your monthly mortgage payment. If you happen to refinance to another FHA loan within 3 years, you would be eligible for a pro-rated refund of the upfront fee. For Mortgage Insurance Premium, how much you have to pay depends on how much you are putting down.
Mortgage Insurance Premium is used to protect the investor on a loan in the event that the borrower defaults on their payments and the home goes into foreclosure. In that worst-case scenario, the Mortgage Insurance Premium would be used to help repay part of the loan balance that would be lost on the next sale.
Mortgage Insurance Premium stays on for the life of the loan unless you are putting 10% or more down. If that is the case, your Mortgage Insurance Premium can be removed after 11 years.
Here is a table outlining the different Mortgage Insurance Premium options:
Understanding Mortgage Insurance Premium and how it relates to FHA home loans can seem daunting, but knowing the answers to the basic questions we proposed above will help you in deciding which loan program is right for you. Ask your Loan officer if you have any other questions, and they will be able to help you on your journey to homeownership.