First Time Home Buyers FHA Mortgage InsuranceWhat is First Time Home Buyers FHA Mortgage Insurance? It is a hidden cost that many people do not think about. Discover what those costs are and what options you can use to pay for them. Since FHA requires mortgage insurance premium (MIP) on all its loan programs, you cannot avoid this. It will cost you 1.5% of the loan amount to be paid upfront at the closing.
For many First Time Home Buyers, FHA Mortgage Insurance is paid by the seller. Depending on how you negotiate the purchase contract, this could be no out of pocket money for you. However, you need to be aware of this cost since it can affect how much money you need at the closing table.
Then you’ll have a monthly MIP to pay which will be included in your PITI . This is .50% of your monthly payment amount. I tell people to look at it like an increase to your interest rate because in reality that’s exactly what it is. It never goes away until you sell the house or refinance it.
The 1.5% upfront MIP only applies to 1-4 family owner occupied dwellings. Condos will only require the monthly MIP and no upfront MIP.
Since FHA loans are used by mostly first time home buyers, the MIP is usually higher than a conventional loan because it’s considered a higher risk loan. As mentioned above, on a FHA purchase you will be charged 1.5% of the sale price and renewal rate of .50%.
Conventional loans could be as low as .50% (with a 5% or more down payment) and renewals are as low as .30% in subsequent years. When you pay your balance down below 80% on conventional loans it drops off and you do not have to pay MIP any longer.
On FHA loans, the monthly MIP never stops regardless of how much you pay down on the balance of your loan.
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