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Risk Based Premiums for FHA Mortgage Insurance

Effective July 14, 2008, FHA provides government insured loans with risk based premiums on one- to four-unit single family mortgages. Under this plan, if you have bad credit or are putting less money down on your house, you would have to pay more for the Up Front Mortgage Insurance Premium (UFMIP) and monthly mortgage insurance (MI). The mortgage insurance doesn't have any effect on the FHA mortgage rates. It's just additional money you would need to pay on your mortgage.

This FHA mortgage insurance is what protects lenders in case you default on your mortgage loan. If you default, the FHA guarantees they'll pay the lender, which is what keeps the interest rates low for borrowers due to the decreased risk to the lenders. FHA uses the proceeds from the mortgage insurance to pay the lenders.

To offset the increased risk FHA exposes itself to when lending to people with bad credit, the government decided to implement risk based mortgage insurance for government insured loans. The good news is that the risk based mortgage insurance also rewards those with good credit because they pay less for mortgage insurance than those with bad credit and non-traditional credit.

Previously, when you took out a FHA loan amortized over 30 years, the U.S. Department of Housing and Urban Development (HUD) required that you pay UFMIP equal to 1.5% of the loan amount and .5% of your monthly payment for mortgage insurance. Now, depending on your FICO credit scores (or lack thereof) and loan to value (LTV) you may pay more (or less) based on the grid below:

FHA Single Family Mortgage Insurance
Upfront and Annual Mortgage Insurance Premiums

(Loan Terms > 15 years)

Effective as of July 14, 2008

All premiums are specified in basis points (0.01%)

Decision Credit Score (FICO)

LTV

 

850-680

 

679-640

 

639-600

 

599-560

 

559-500

 

499-300

NON-TRADITIONAL

 

= 90.00

 

125/50

 

 

125/50

 

125/50

 

150/50

 

175/50

 

175/50

 

150/50

 

90.01-95.00

 

125/50

 

 

125/50

 

150/50

 

175/50

 

200/50

 

n/a

 

175/50

 

> 95

 

125/55

 

 

150/55

 

175/55

 

200/55

 

225 a /55

 

n/a

 

200/55

  1. A first-time homebuyer, with HUD-approved counseling, will pay only 200 basis points for the upfront mortgage insurance premiums.

Source: HUD Mortgagee Letter 2008-16

All FHA loans-purchase loans and FHA home refinancing (including cash out refinance mortgages, FHASecure and FHA Streamline refinance)-are subject to the risk based mortgage insurance premium. No borrower who qualifies for FHA government insured loans will pay more than 2.25 percent on the upfront mortgage insurance premium (UFMIP) and 55 basis points for the annual premium. Borrowers without credit bureau scores will need to be manually underwritten, and the mortgage insurance premium will be determined by the loan-to-value ratio for the non-traditional column in the premium schedule.

There are other criteria in determining what FHA borrowers will pay for the risk based mortgage insurance premiums. Download FHA Mortgagee Letter 2008-16 for more information.

One-year Moratorium on Risk Based Mortgage Insurance Premiums
As a result of the continuing housing and foreclosure crisis, there is now a one-year moratorium on the new risk based premium for FHA mortgage insurance. But, we're providing this information because once the moratorium is lifted the risk based premiums will be back in force.

 

 

 

 
   
       
 

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