Fha Mortgage Insurance
The FHA loan insurance program was created to help average income earner people who wanted to own a house. Mortgage loans require the borrower to pay around 20% of the cost of the house as a down payment, which becomes a pretty big sum for an average American family. In order to provide protection to the lenders against losses due to defaulted payments, the loans are insured by FHA.
The insurance premium for a FHA insured mortgage loan is of 1.5% of the amount of the loan and is meant to be paid upon closing. This fee is usually included in the loan, so one pays it gradually over the life of the loan, and hence in a way, home buyers finance the cost of the FHA mortgage insurance premium into their mortgage amount only.
Apart from the upfront fee, FHA also charges a renewal premium of 0.5% of the loan amount per year as the mortgage insurance premium. The good thing is that the borrower is not mandated to pay this fee at once, but it is divided into 12 parts and the borrower pays these parts one in a month. FHA does not charge the annual mortgage insurance premium to the mortgages with a term of 15 years or lesser and with loan to value ratios of 89.99% or lesser.
The mortgage insurance premium by FHA is mandatory for the first five years of loans with terms of more than 15 years, even if the loan balance reaches 78% of the original home value. This is contrary to the offerings by private mortgage insurance plans where premiums can often be removed if the loan balance is below 80% of the current market value.
FHA mortgage insurance has been designed with some relaxation for the mandatory premium payment. A borrower having a loan term of 15 years or less, who puts down 10% of the house price or more, the FHA mortgage insurance premium gets cancelled when the loan balance is 78% of the original appraised value or original sales price of the property (whichever is less). If one pays 20% down on a 15 year loan, there is no not need to pay the mortgage insurance premium.
One of the very attractive feature of the FHA mortgage insurance is that it does not cost even a penny to the taxpayers. FHA mortgage is totally self-funded, and the money that comes as the insurance premium from the borrowers goes directly into an account which pays for the FHA's expenses. This is the great deal about the FHA mortgage insurance plan, as it not only helps borrowers and the lenders, but also gives some saving in tax to the hard working people.
The insurance premium for a FHA insured mortgage loan is of 1.5% of the amount of the loan and is meant to be paid upon closing. This fee is usually included in the loan, so one pays it gradually over the life of the loan, and hence in a way, home buyers finance the cost of the FHA mortgage insurance premium into their mortgage amount only.
Apart from the upfront fee, FHA also charges a renewal premium of 0.5% of the loan amount per year as the mortgage insurance premium. The good thing is that the borrower is not mandated to pay this fee at once, but it is divided into 12 parts and the borrower pays these parts one in a month. FHA does not charge the annual mortgage insurance premium to the mortgages with a term of 15 years or lesser and with loan to value ratios of 89.99% or lesser.
The mortgage insurance premium by FHA is mandatory for the first five years of loans with terms of more than 15 years, even if the loan balance reaches 78% of the original home value. This is contrary to the offerings by private mortgage insurance plans where premiums can often be removed if the loan balance is below 80% of the current market value.
FHA mortgage insurance has been designed with some relaxation for the mandatory premium payment. A borrower having a loan term of 15 years or less, who puts down 10% of the house price or more, the FHA mortgage insurance premium gets cancelled when the loan balance is 78% of the original appraised value or original sales price of the property (whichever is less). If one pays 20% down on a 15 year loan, there is no not need to pay the mortgage insurance premium.
One of the very attractive feature of the FHA mortgage insurance is that it does not cost even a penny to the taxpayers. FHA mortgage is totally self-funded, and the money that comes as the insurance premium from the borrowers goes directly into an account which pays for the FHA's expenses. This is the great deal about the FHA mortgage insurance plan, as it not only helps borrowers and the lenders, but also gives some saving in tax to the hard working people.