Maximize Your FHA Insurance in PA

FHA upfront mortgage insurance is a type of insurance that is required by the Federal Housing Administration (FHA) to protect lenders from losses that may result from borrowers defaulting on their loans. This insurance allows lenders to offer FHA-insured loans with lower down payment requirements and less stringent underwriting standards, making it easier for borrowers to qualify for financing.

While the upfront mortgage insurance premium (UFMIP) paid by borrowers is typically added to their loan balance, borrowers should understand that this will increase the overall cost of their loan, as they will be paying interest on the UFMIP amount over the life of the loan.

The upfront mortgage insurance payment is payable at closing and is now 1.75 percent of the base loan. The base loan is the amount after subtracting the down payment, and most FHA applicants make the minimum 3.5% down payment.

Understand FHA Mortgage Insurance Calculations

In addition to the upfront mortgage insurance cost, buyers must pay a monthly premium. Here's the math:

30-year FHA upfront mortgage insurance example
1. Sales price $ 200,000
2. Less down payment (3.5%) $ 7,000
3. Base mortgage = $ 193,000
4. Funding fee percentage X 1.75%
5. Funding fee cost $3,377.50

The FHA funding fee and monthly mortgage insurance have changed numerous times. Currently, the upfront mortgage insurance is 1.75% of the loan amount.

The base mortgage (line 3) and the funding fee cost (line 5) are added together for a final loan amount of $196,377.50. The principal and interest payment is calculated on the "base" mortgage and upfront cost.

Learn About FHA Monthly Mortgage Insurance Premiums

FHA mortgage insurance graphicThe FHA monthly mortgage insurance premium is calculated based on the loan amount, term length, and loan-to-value ratio. The bonus is divided into an upfront premium (UFMIP) and an annual premium.

The upfront premium is 1.75% of the loan amount and is paid at closing.

The annual (monthly) premium is paid in 12 monthly installments and is 0.85% of the loan amount for loans with terms greater than 15 years and loan amounts less than $625,000.

FHA mortgage insurance protects lenders from loss if borrowers default on their loans. The insurance allows lenders to offer loans with lower down payment requirements and credit standards, which makes homeownership more accessible to borrowers who might not otherwise qualify.

This chart illustrates the monthly mortgage insurance costs based on a down payment, loan amount, and loan term.

FHA Loan Guarantee Fee Explained | FHA Mortgage Source

Here's how the monthly mortgage insurance is calculated for an FHA loan:

30-year FHA Monthly MIP
1. Sales price $ 200,000
2. Less down payment (3.5%) $ 7,000
3. Base mortgage = $ 193,000
4. MIP percentage X .85%
5. Funding fee cost $1,640.50
6. Divided by 12 months $136.71

FAQs About FHA Mortgage Insurance

Q. How to get rid of FHA mortgage insurance?

A. A. The only way to get rid of FHA mortgage insurance is to refinance into a conventional loan, and you can't simply cancel it.

Q. What does FHA mortgage insurance cover?

A. FHA mortgage insurance covers the lender if the borrower defaults on their loan. This insurance protects the lender from having to bear the total cost of the loan if the borrower cannot repay it. The insurance also allows the lender to offer borrowers with less-than-perfect credit a chance to get a mortgage.

Q. How to avoid mortgage insurance on a FHA loan

Conclusion

In conclusion, FHA Mortgage Insurance in Pennsylvania is an important measure that allows lenders to reduce their risk and help borrowers to obtain affordable financing. The FHA upfront mortgage insurance requirement protects lenders against potential losses, allowing them to offer more competitive products and services.

By taking the time to understand the FHA requirements, borrowers in Pennsylvania can shop for a loan with confidence. Furthermore, it is essential to remember that each lender may have additional requirements related to FHA mortgage insurance that must be met.

Recommended Reading

10 Home Buying Tips for First Time Buyers

Buyer Closing Cost Calculator PA

The FHA Amendatory Clause: What You Need to Know

Read more about FHA mortgages at FHALoanPlus.com