MIP fees serve the same purpose for FHA mortgages as Conventional Private Mortgage Insurance (PMI) fees serve for Conventional mortgages. The fees cover some of the losses incurred when mortgagors don’t make their mortgage payments.
FHA charges both an up-front fee and a monthly fee. On July 14, 2008, , FHA will implement what they call a “risk based fee structure.” Most FHA homebuyers will fall into the risk category with less than 5% down and a credit score of 680 or higher. For that risk category, the upfront fee that is added to the base mortgage at closing will remain at 1.25% of the base mortgage. The monthly fee, which is calculated on an annual basis, will be increased from a 0.50% to 0.55% annually. Therefore, a $200,000.00 base mortgage will have a $2,500.00 up front fee added to the base mortgage at closing, and a monthly fee of $83.33. A credit score of less than 680 will require a higher up front fee. A down payment in excess of 5% will allow for a lower monthly fee and in come cases a lower up front fee.
The monthly fee must be paid for a minimum of five years and until your mortgage balance reaches 78% or less of the original purchase price. No credit is given for improvements to the property or appreciation in home value.
If you want more detailed information about FHA Mortgage Insurance Premiums, follow this link to the FHA disclosure form. LINK You may also want to read “Removing PMI” for Conventional Mortgages.
Unless you have a 20% down payment, there is no simple answer as to whether an FHA Mortgage is better than a Conventional Mortgage. A significant part of my job is to help you sift through the cost and guidelines so you can pick the type of financing that best matches your circumstances.
Lou Auger, Summit Mortgage – Email – Website
