For FHA MIP Means Mortgage Insurance Premium
New Rules That May Impact Tucson Home Buyers
FHA MIP rule changes beginning April 1, 2013. The FHA Mortgage Insurance Premium (MIP) will increase to 1.35% on 30-year amortized loans with 3.5% down. Please note that this is in addition to the monthly mortgage payment.
FHA News Update – FHA Lowers Mortgage Insurance Premiums Beginning January 2015 – READ NOW
This will not have a huge impact on buyers qualifying
The bigger change in FHA MIP comes effective June 3, 2013. On June 3, FHA MIP will be for the life of the loan! In the past, once a home’s principal balance reached 78% of the original sales price after being paid for 5 years, the MIP would drop off. How much of an impact does this have on a loan?
To put this in perspective, with a purchase price of $175,000 and a 3.5% down payment, the loan amount would be $168,875. Adding the 1.75% “up front FHA MIP”, the total loan amount would be $171,830. (Remember: FHA charges MIP on two levels – up front, which is financed into the loan AND annually which is paid monthly.)
A Quick Example
| MIP CANCELATION |
CURRENTLY 78% OF ORIGINAL LOAN |
AFTER 6/3/13 LIFE OF LOAN |
| Cumulative Premium |
$19,190.00 |
$40,969.00 |
| Example with 4% loan rate | 30-Year term – ARP=5.017% |
For the homeowner who intends to live in the home less than ten years, this does not have a significant financial impact. However, if you plan on living there longer you may want to consider refinancing into a conventional loan. This would eliminate the FHA MIP.
Other considerations would be the 3% down conventional loan. This program comes with it’s own set of more restrictive guidelines. For more on FHA Loan rules and FHA MIP go to the FHA Website.
Conclusion
FHA rules change frequently. Consult a mortgage lender to understand the rules when you are considering buying a home.
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