Not long after being sworn into office, President Trump undid the impending FHA premium cut.The reduction would have slashed 0.25% on the annual fee. The suspension was signed by the president right after his inauguration.
The cut was announced by the outgoing HUD secretary Julian Castro earlier in January. This would mean around $500 savings from homes which cost $185,000. While that doesn’t sound like a huge deal of money, savings is still savings and every penny counts. This rollback is not set in stone, though. Many are still hopeful that the annual premiums may still lower down before the year ends.
Despite this, the FHA fund remains stable . With its low downpayment offers and not-so-rigid credit score requirements, FHA still remains as one of the best government-backed loan options in the market.
Let’s have a quick review on how one qualifies for an FHA loan.
- The borrower must have a steady employment and income source for the past two years.
- A down payment must be made. The minimum down payments must be 3.5% of the loan.
- The borrower must have a minimum credit score of 580 to avail of the minimum down payment of 3.5 percent and to get maximum financing.
- A two-year span free from any bankruptcy or bad credit is also a need.
- The property must meet the minimum requirements set, must undergo appraisal by an FHA-approved appraiser, and must the borrower’s primary residence.
- A mortgage insurance premium (MIP) is required for this loan.
Mortgage Insurance is Unavoidable
An FHA sounds so good too be true. Being less stringent compared to conventional loans, anyone would want to qualify. But, what’s the catch? You are required to pay the mortgage insurance and that can be quite expensive.
You got the Upfront Mortgage Insurance Premium which, as the name suggests, you pay upfront and one-time. This is paid at the closing. You can also choose to have it rolled into your monthly mortgage payments.
There is also the Annual Mortgage Insurance Premium. This is calculated based on the borrower’s LTV (loan-to-value) ratio, loan amount and the loan term. Although the name says “annual”, this MIP is a monthly charge which you would have to pay together with your mortgage payment.
At the beginning of the loan, you may ask the lender about the MIP and an estimate as to how much you must pay. But in the closing, the full details of the MIP and all other particulars will be discussed to you thoroughly.
Is it possible to get rid of MIP? Good Question!
The answer is a resounding “YES”! For you to eliminate your MIP, your home equity must be, at the very least, 20%. Once you have paid out 80% of your mortgage loan balance (basing on the original appraise value of the home), you may speak to your lender on removing the mortgage insurance.
The suspension does not mean that there will definitely be no reduction happening this year. And while we are hopeful that this happens soon, look for other ways to save money from your monthly payments in the meantime.
Consider refinancing your mortgage. FHA offers one of the best refinancing programs in the market. The Streamline Refinancing Program simplifies the process by waiving off the income, employment documentations and credit reviews, and not requiring another property appraisal. Refinancing does not remove MIP but many borrowers refinance to lower their MIP. And, talking about saving money, refinancing can greatly lower your interest rates.