Do FHA mortgage insurance premiums confuse you? How do you know what you have to pay when? And what are the rates for this year?
Keep reading to get a breakdown of the FHA 2018 mortgage insurance premium amounts as well as when you pay them.
The Upfront Mortgage Insurance Premium
The first mortgage insurance premium you pay when you take out a new FHA loan is the upfront mortgage insurance premium. The name ‘upfront’ gives you the inclination that you must pay it at the closing. In 2018, the rate is 1.75% of your loan amount. If you had a $200,000 loan, you would owe $3,500 for mortgage insurance.
This is in addition to the closing costs and your down payment. The upfront mortgage insurance premium goes directly to the FHA. Since they are a self-funded program, the mortgage insurance premium is what helps the FHA guarantee the loans for banks. The guaranty is what allows lenders to write 97.5% LTV loans to somewhat risky borrowers.
The Annual Mortgage Insurance Premium
In addition to the upfront mortgage insurance premium, you will also pay annual mortgage insurance premium. The name of this insurance makes it sound as if you would pay it once a year, but you actually pay it on a monthly basis.
The amount you pay is 0.85% of your loan amount. The insurance is based on your outstanding loan amount each year. At the start, you’ll pay 0.85% on the full balance that you borrow. On a $200,000 loan, this means $1,700, but the lender charges you per month. This means you would pay $142 per month. As you pay the principal down, the mortgage insurance that you pay each month will decrease. You will see a slight decrease in your FHA payments as the years go on.
Higher and Lower Loan Amounts
Now, the above figures were for standard loans of 15+ years, an LTV greater than 95%, and a loan amount less than $625,500.
The amount you pay may change if your loan amount and LTV differ, but the loan term is still greater than 15 years:
- If you borrow less than $625,500, but have an LTV lower than 95%, you pay 0.80% per year
- If you borrow more than $625,5000, but have an LTV less than 95%, you pay 1.0%
- If you borrow more than $625,500, but have an LTV greater than 95%, you pay 1.05%
If you take a loan term less than or equal to 15 years, you will pay the following:
- If you borrow less than $625,500, but have an LTV less than 90%, you pay 0.45%
- If you borrow less than $625,500, but have an LTV greater than 90%, you pay 0.70%
- If you borrow more than $625,500, but have an LTV less than 78%, you pay 0.45%
- If you borrow more than $625,500, but have an LTV between 78.01% and 90%, you pay 0.70%
- If you borrow more than $625,500, but have an LTV greater than 90%, you pay 0.95%
Typically, FHA borrowers take the 30-year option and put just 3.5% down on the home. Borrowing less or making a larger down payment is usually better with a non-FHA loan since you will pay mortgage insurance for the life of the loan, no matter your LTV.