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FHA Mortgage Insurance

Are FHA Loans required to carry Mortgage Insurance?
At the present time, all FHA mortgages are required to carry mortgage insurance. There are two types of FHA mortgage insurance. The first type is the FHA Upfront Premium and this is carried on all FHA loans. The second type are the Annual Premiums and these are remitted on a monthly basis. FHA mortgage insurance is very affordable as compared to other loan types.

What are the current rates on FHA Mortgage Insurance?
The Housing and Economic Recovery Act of 2008 provides for a one-year moratorium on the implementation of FHA’s risk-based premiums beginning October 1, 2008. Consequently, effective with new FHA case number assignments on or after that date, FHA will no longer base its mortgage insurance premiums on a combination of credit bureau score and loan-to-value ratio. The new premiums (upfront and annual) to be implemented for all loans for which a case number is assigned on or after October 1, 2008, are described below.  Mortgagee Letter 2008-16 is rescinded in its entirety.  Please note that certain parts of that mortgagee letter are retained and reiterated in the guidance that follows.

Upfront Premiums:  FHA will charge an upfront premium in an amount equal to the following percentages of the mortgage: 

Purchase Money Mortgages and Full-Credit Qualifying Refinance = 1.75 Percent

    Streamline Refinances (all types) = 1.50 Percent

Annual Premiums:  An annual premium, shown in basis points below, to be remitted on a monthly basis, will also be charged based on the initial loan-to-value ratio and length of the mortgage according to the following schedule:


LTV

               Loans >15 Years

               LTV

               Loans < 15 Years

< 95%

               .50

               < 90%

               None

> 95%

               .55

               > 90%

                .25

Highlights Regarding FHA’s Mortgage Insurance Premiums

  • All loans to borrowers with a credit score must be risk-classified by FHA’s TOTAL Mortgage Scorecard.
  • Borrowers with decision credit scores below 500 and with loan-to-value ratios at or above 90 percent are not eligible for FHA-insured mortgage financing.
  • Borrowers without credit bureau scores will need to be manually underwritten and deemed as eligible based on criteria described in Mortgagee Letter 2008-11.

Loan-to-Value

For insurance premium purposes and eligibility for FHA mortgage insurance, the loan-to-value ratio, computed to two decimals (e.g., 95.65), is calculated by dividing the mortgage amount prior to adding on any upfront mortgage insurance premium by the sales price or appraised value, whichever is less. 

For refinance transactions, which often include closing costs in the loan amount, the LTV is determined by dividing the loan amount prior to adding on any upfront mortgage insurance premium by the appraiser’s estimate of value.

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 FHA Refinance Loan Programs

Rate/Term Refinance (No Cash Out)
The FHA Rate/Term Refinance is for borrowers who currently have a conventional fixed rate or ARM mortgage and wish to refinance into an FHA Mortgage. This program helps borrowers who wish to have a stable, FHA insured fixed rate mortgage.

FHA Cash-Out Refinance
A FHA Cash Out Refinance Loan is perfect for the homeowner who wants to access the equity that they have built up in their home. This program is beneficial to homeowners whose property has increased in value since it was purchased.

FHA Streamline Refinance
The FHA Streamline Refinance is designed to lower the interest rate on a current FHA mortgage or convert a current FHA adjustable rate mortgage into a fixed rate. An Streamline FHA Refinance Loan can be performed quickly and easily. It requires much less hassle and paperwork than a normal refinance including no credit check, no appraisal, no qualifying debt ratios and no income verification.


 FHA Refinance Loan FAQ's

Are there any out of pocket expenses for an FHA Refinance Loan?
Generally, there are no out-of-pocket expenses incurred with an FHA Home Refinance, other than the appraisal fee. FHA Refinance Guidelines allow all other closing costs, including lender fees, to be included in the new loan amount, provided that the home will appraise for that amount.

Can I take cash out of my home with an FHA Refinance?
Yes, with an FHA Cash Out Refinance, the home owner obtains a new FHA Mortgage Refinance for more than the amount owed on their current mortgage; meaning the homeowner pays off the current mortgage and then has additional cash to use however they want. They maximum loan amount for an FHA Cash Out Refinance is 85% of the homes current appraised value.

What are the guidelines for an FHA Refinance Loan?
If the borrower wishes to take cash out of the property, then the maximum FHA Home Loan Refinance amount is 85% of the current appraised value. If the borrower does not take cash out then the maximum financing will be 97.75% of the appraised value of the home or the amount you are refinancing plus closing costs, whichever is lower.

Why should I consider refinancing into a FHA-insured mortgage?
FHA Refinance Loans do not come with prepayment penalties, have no teaser rates nor balloon payments. They are offered at market rate with terms up to 30 years and are fully amortized, meaning that you pay towards principal and interest every month.

What if I have a prepayment penalty and other refinancing costs and there isn’t enough equity in my home to refinance?
If you do not have sufficient equity in your home to add your prepayment penalty and/or other refinancing costs into your new FHA Mortgage Loan Refinance, then you should ask your lender to consider a second mortgage to pay the difference or a short payoff on your existing loan. Offering either of these options is at the discretion of the lender.

Does it matter that the value of my home is now less than what I still owe?
The mortgage lender considering the refinance will have to be willing to accept a short payoff on the existing loan OR to hold a second mortgage to make up the difference needed to pay off the existing mortgage and the home’s value.

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