FHA Mortgage Insurance-----YUCK!

Beginning June 3, 2013, the FHA changed its long-standing Annual MIP Cancellation Policy. Certain homeowners will lose their right to cancel the annual MIP. FHA MIP will be perpetual.

Here's what's changing. In addition to the 1.75% up front insurance premium which is generally financed into the loan which still applies before and after the changes, the following applies:

Before the change, the Federal Housing Administration requires homeowners to pay annual MIP so long as their loan-to-value is greater than 78%, where "value" is equal to the last known value of the home.

In addition, if the original mortgage term is greater than 15 years, at least 60 payments must have been made on the mortgage before FHA MIP can be automatically cancelled.

Beginning in June, though, the FHA moves away from an LTV-based system. The new cancellation policy will be as follows :
· Loans beginning at 90% LTV or less will pay annual MIP for 11 years.

· Loans beginning at 90% LTV or more will pay annual MIP for the complete loan terms.

This means that home buyers using the Federal Housing Administration's 3.5 percent downpayment program will pay annual mortgage insurance for the loan's full 30 years, regardless of whether the home appreciates to the point of having 22 percent equity or more.

With the new FHA rules, MIP is forever. For most FHA loans (over 90% LTV and 30 year terms) the annual MIP is 1.35%. To be clear a $200,000 mortgage will pay$3500 up front MIP and $2700 the first year in annual MIP in addition to principal, interest, taxes, and insurance. . . . . . . . . . . . . . . . . . . . . . . . .YUCK!