One of the biggest advantages to FHA financing is reasonable monthly mortgage insurance, despite the amount of money put down on the home purchase. FHA mortgage insurance monthly rates can be substantially lower than conventional mortgage insurance, especially for down payments of 10% or less.
However, the reason FHA mortgage insurance premiums are low is that FHA also charges an up-front mortgage insurance premium (UFMIP) in addition to the monthly premium.
The monthly amount is based on a .55% factor (Loan amount x .55% / 12 months) and the up-front mortgage insurance premium is 1.75% of the loan amount.
** Announcement: Jan 19, 2010. FHA up-front mortgage insurance premium to increase to 2.25%!
The UFMIP on an FHA Streamline Refinance is 1.5%, and the home owner will receive a portion of the previous UFMIP as a refund credit at closing, if their previous mortgage is less than 3 years old.
One disadvantage of FHA mortgage insurance is that it cannot be cancelled until the mortgage is paid down to 78% of the original balance. This differs from conventional financing which allows for mortgage insurance to be removed after 20% equity is acheived, so an increase in home value can help a home owner get rid of conventional mortgage insurance, but not FHA.
If you have additional questions about FHA mortgage insurance or would like to talk to one of our experienced FHA home loan consultants, please fill out our FHA quick quote form on the right.
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