Calculating FHA Mortgage Insurance Premiums
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Although FHA loans can provide homeowners needing a low down payment with accessible home financing, paying FHA mortgage insurance can cause confusion. Here's an explanation of how mortgage insurance works, including how much you can expect to pay for it.
FHA Up-Front Mortgage Insurance Premium:
FHA typically requires borrowers to pay part of the mortgage insurance premium at closing. This is called the upfront mortgage insurance premium, or UFMIP. The percentage charged for UFMIP is 1.75% of your base mortgage amount, or the amount of your mortgage before any other costs are added. Starting April 5, the UFMIP is increasing to 2.25%.
The UFMIP percentage can vary according to loan type:
- For FHA streamline refinances, the UFMIP percentage is 1.50 percent
- For cash out refinances, the UFMIP percentage is 1.75 percent
The UFMIP is usually financed by adding the UFMIP amount to the base mortgage amount.
Example: If you're buying a home for $200,000 and financing (or refinancing) 96.50% of its value, your base mortgage amount is $193,000. Multiply this amount by 1.75% to determine the UFMIP. In this case, the UFMIP is $3,377.50.
Calculating Annual MIP for Home Loans and Refinancing
In addition to using mortgage calculators for comparing mortgage rates and refinance rates, it's important to understand how the annual MIP affects your monthly payments. FHA mortgage payments typically consist of principle, interest, taxes, and insurance. Insurance includes hazard insurance and the annual portion of your required mortgage insurance. To calculate annual MIP, multiply your base mortgage amount (before UFMIP is added) by the appropriate factor:
- If your loan-to-value ratio is 95 percent or less: .50 for a loan over 15 years, no MIP required for loans less than 15 years
- If your loan-to-value ratio is greater than 95 percent: .55 for a loan over 15 years, .25 for a loan under 15 years
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