Mortgage Insurance Premium – All about FHA Mortgage Insurance Premium and How to Avoid or Get Rid Of It

All about FHA Mortgage Insurance Premium and How to Avoid or Get Rid Of It

Article by Mortgage Guru

When you are buying a new house, you have often heard this term called Private mortgage insurance (PMI), which is an insurance you are required to pay if you are paying less than 20% of your down payment to a conventional lender. However, when we talk of FHA mortgages, the down payments are said to be low, sometimes as low as 3%, but they too require FHA mortgage insurance premium for lowering down payments. Just like any private mortgage insurance the purpose of FHA mortgage insurance premium is to protect the lender. When borrowers have minimal equity in their homes, the risk to the lender that the borrower may default is higher as most borrowers will have nothing much to lose by walking away and letting the bank foreclose on the home. This article focuses on what is FHA mortgage insurance and what are your options for avoiding or getting rid of it.FHA loans have low down payment requirements and less stringent income and credit requirements in comparison to conventional loans, a boon to minority borrowers, first time home buyers and borrowers who have troubled credit history. With such less than perfect borrowing characteristics, insurance is a kind of guarantee to the borrower that he would at least be able to recoup the losses in an event where the borrower stops mortgage payments or walks away. It may seem that it is the interest of the borrower that is taken care of and the purchaser is not protected. But without insurance many people won’t be able to get loans until higher down payments are made, as banks would view it as high risk. Therefore many people find paying mortgage insurance premiums a better option than waiting several years until they have a high enough down payment to avoid it.So how much does one pay towards such insurance? FHA requires an upfront payment of mortgage insurance, which as of 2009; costed you about 1.5% of your total mortgage amount. You may choose to pay it when you close your loan or roll it with total mortgage amount. It is recommended to pay this amount upfront because by rolling it with your loan it may be lot expensive in the long run. It may increase your down payment from 3.5% to almost 5%. Hence you need to save more before you buy.But if you have rolled it in your loan, you are not obligated to pay the monthly premiums indefinitely. If the term is longer than 15 years, they will end when the loan-to-value hits 78 percent, as long as the borrower has paid the premiums for at least five years. If the mortgage term is 15-years or less, and the initial loan-to-value was 90 percent or more, the premiums end when the loan-to-value reaches 78 percent, no matter how many premium payments the borrower has made. Again if home prices appreciate, you may be able opt for FHA refinancing and your way out of private mortgage insurance. For this to work, your home’s value will need to have appreciated enough to give you 22% equity in the home. If you’re able to refinance within the first two to three years of the initial purchase, you may be entitled to a partial refund of the up-front mortgage insurance premium.Again by FHA mortgage refinancing you may refinance from a FHA loan to a conventional loan. Lenders who underwrite loans to Fannie Mae or Freddie Mac, the nation’s two largest government-backed mortgage investors, do not require mortgage insurance if the loan amount is less than 80 percent of the home’s value. You may take quotes from 3 to 5 mortgage lenders for your refinancing and compare the options and determine which loan type is best for you. You may apply with a lender who will give you a good combination of low interest and low fees.

http://www.bills.com/private-mortgage-insurance/

http://www.bills.com/fha-streamline-refinance/

http://www.bills.com/fha-refinance/










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Tuesday, February 21st, 2012 mortgage

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