 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 Mortgagee Letter 2008-16 is rescinded in its entirety.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.
More information on FHA Mortgages
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