FHA Mortgage Insurance

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Do you have to buy mortgage insurance on an FHA loan?


Yes. There is an up front mortgage insurance premium equal to 1.5% of the loan amount that is paid at closing. In most cases, this mortgage insurance premium is included in your loan amount, so you are really paying it over the life of the loan. In addition, on loans with a term of greater than 15 years and a loan-to-value ratio of 90% or greater (meaning you are borrowing more than 90% of the value of the home), you will pay an annual mortgage insurance premium of 0.5% of the loan amount in monthly installments.

 

Example:

Up Front Mortgage Insurance Premium
Mortgage amount: $100,000 X 1.5% = $1,500 @ 6.5% for 30 years = $ 9.48 per month


Annual Mortgage Insurance Premium
Mortgage amount: $100,000 X 0.5% = $ 500/12 months = $41.67 per month


Total Mortgage Insurance Premium $51.15 per month

Most loans require mortgage insurance when your down payment is less than 20% of the sales price. On conventional and subprime loans, mortgage insurance is provided by private companies. Whether private mortgage insurance is less than, equal to, or more than FHA loan insurance will depend upon the loan program and your qualifications.

Compare the cost of FHA over the life of your loan and how much it costs monthly to subprime and conventional types of loans. With the protection you get with FHA - it's a very good deal.