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When shopping for an FHA loan, it's easy to focus on mortgage rates and estimated principle and interest (P&I) payments. Remember to estimate for additonal amounts required for paying taxes, hazard insurance, and mortgage insurance (MI).

FHA Mortgage Loans: Why Did my Fixed Rate Mortgage Payment Increase?

FHA mortgage loan programs offer first time buyers and moderate income borrowers mortgages with low down payments and flexible credit guidelines, but there are additional ongoing expenses including property taxes, hazard insurance, and the annual mortgage insurance premiums required by FHA. Your lender pro-rates these costs and adds them to your monthly mortgage payment.

PITI Me! My Mortgage Payment's Going Up!

Mortgage lenders typically issue mortgage quotes based on principle and interest (P&I) payments. The P&I payment for fixed rate mortgages is the stable payment amount that covers paying your your mortgage balance and mortgage interest. For FHA loans, lenders are required to collect additional funds for paying for your property taxes, hazard insurance, and mortgage insurance (MI) Your entire mortgage payment amount may be called PITI. Here's why mortgage lenders collect and pay these expenses on your behalf:

  • Property taxes: Missed payments accrue penalties, and failure to pay property taxes (usually assessed by the county where your home is located) can lead to foreclosure. Property tax liens take precedence over mortgages, so if you don't pay your property taxes, and the taxing authority forecloses, the lender would have to pay them to keep the county from taking the collateral (your home!) and selling it to cover your taxes. Your lender protects its interest by collecting for and paying property taxes.
  • Hazard insurance: This insurance protects you and your lender if your home is damaged by fire or other disasters. It does not cover your flood damage; if you live in a flood-prone area, you may also have to buy flood insurance. Your hazard insurance premiums are pro-rated monthly and added to your mortgage payment.
  • Annual Mortgage Insurance (MIP): FHA charges borrowers premiums for guaranteeing your mortgage lender against losses due to mortgage default. You pay an annual mortgage insurance premium pro-rated monthly. This is called MIP.

These costs can change, and your mortgage lender will recalculate amounts needed annually, and notify you of adjustments and new mortgage payment amount. These changes are based on actual costs of taxes and insurance, and are not negotiable.

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.