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FHA is raising its upfront mortgage insurance premium (UFMIP), and planning to increase the cap on annual mortgage insurance premiums so that some of the increased UFMIP can be converted to annual premiums. Here's how to estimate mortgage insurance premiums.

FHA Mortgage Insurance: What's "Up" and Why It's Important

Understanding FHA mortgage insurance is essential to accurately calculate the costs of an FHA mortgage. FHA doesn't directly fund mortgages, but it insures mortgage lenders against losses associated with mortgage default and foreclosure. In order to pay for this program, FHA charges borrowers a mortgage insurance premium, part of which is paid upfront, and the remainder is calculated annually and pro-rated monthly as part of your mortgage payment.

FHA is making changes to its mortgage insurance program including raising the UFMIP from 1.75% of the loan amount to 2.25%. For a $200,000 mortgage, the UFMIP would increase from $3,500 to $4,500. FHA borrowers often add the UFMIP to the mortgage amount, but this increase remains an additional cost for borrowers. FHA is planning to increase its current cap of .55% allowed for the annual MIP amount; with a $200,000 mortgage, the maximum annual MIP amount would be $1,100, or approximately $91.66 added to your monthly mortgage payment.

When comparing mortgage options, it's important to look at your current financial situation and future goals. Current mortgage rates are making FHA loans more affordable, and well worth considering if you're not prepared to make a minimum down payment of 20%.

Can't Make 20% Down Payment? Think FHA

Conventional mortgage lenders may make loans with less than 20% down, but when they do, they also charge for mortgage insurance (MI). One way or another, you'll pay for insurance with a loan-to-value (LTV) ratio greater than 80%.

Lost Home Value and FHA Refinancing

FHA offers high LTV refinancing for homeowners who cannot refinance to an 80% LTV due to lost home value. Whether you currently have an FHA mortgage or a conventional mortgage with an LTV higher than 80%, FHA may provide a mortgage refinance solution.

Check out several mortgage quotes to find your best deal on FHA home loans; you can estimate potential savings and compare mortgage terms using online mortgage calculators.

Karen Lawson
Karen Lawson is a freelance writer with extensive experience in mortgage banking and home loan loss mitigation programs. She holds BA and MA degrees in English from the University of Nevada, Reno.