How Much is PMI on an FHA Loan in 2021?
FHA mortgage insurance premiums (MIPs) can be somewhat confusing to home buyers. There are several factors that come into play when you’re trying to calculate how much you’ll be paying in MIPs on your FHA loan. In this article, we’ll take a look at the MIP rates for FHA loans in 2021 and how they are calculated.
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FHA Mortgage Insurance
FHA mortgage insurance is a policy that protects lenders from losses that result from defaults on home mortgages. FHA mortgage insurance is required on all FHA loans, regardless of the loan amount or down payment.
FHA Mortgage Insurance for Borrowers
FHA mortgage insurance is just one of the many expenses that borrowers have to pay when they take out an FHA loan. This insurance protects lenders in the event that a borrower defaults on their loan.Borrowers are required to pay for mortgage insurance on their FHA loans regardless of how much money they put down.
The size of your down payment will affect the amount of your mortgage insurance premium, but you will always have to pay something. For example, if you make a 3.5% down payment on a $200,000 loan, you will have to pay $70 per month for mortgage insurance.
You can get rid of your FHA mortgage insurance by refinancing into a conventional loan once you have at least 20% equity in your home. You will need to consult with a lender to see if this is the right option for you.
FHA Mortgage Insurance for Lenders
FHA mortgage insurance protects lenders from losses resulting from defaults on FHA-insured loans. mortgage insurance premiums (MIP) are paid by the borrowers and passed along to lenders in order to help defray their losses.
Lenders are required to collect MIP on all new FHA-insured loans, regardless of the size of the down payment. Borrowers can cancel MIP once they have paid off a certain percentage of their loan, but most choose to keep it in place to avoid having to pay for private mortgage insurance (PMI) .
MIP is paid as an upfront premium at closing, as well as monthly through the life of the loan. The monthly premium is included in the borrower’s mortgage payment.
As of 2021, the upfront MIP for most loans is 1.75% of the loan amount, and the monthly premium is 0.85% of the loan amount. For example, on a $200,000 loan with a 3.5% down payment, the upfront MIP would be $3,500 and the monthly premium would be $167.50.
MIP is required for 11 years if you put at least 10% down on your home, and it’s required for the life of the loan if you put less than 10% down. You can cancel MIP once you reach 22% equity in your home based on its appraised value at that time. You may also be able to cancel MIP if you refinance into a non-FHA loan.
How Much is PMI on an FHA Loan?
FHA loans are popular because they require as little as 3.5% for a down payment and have more flexible credit and income requirements than other loans. But there’s a catch: you have to pay for mortgage insurance. Mortgage insurance protects the lender if you can’t repay your loan, and it can be expensive. Here’s how much you can expect to pay for PMI on an FHA loan in 2021.
Upfront Mortgage Insurance Premium (UFMIP)
FHA loans require an Upfront Mortgage Insurance Premium (UFMIP) of 1.75% of the loan amount, which can be rolled into the loan. FHA loans also require a monthly mortgage insurance premium (MIP) of 0.45% to 1.05% of the loan amount depending on the length of the loan and the initial loan-to-value ratio (LTV).
Annual Mortgage Insurance Premium (MIP)
The upfront MIP is 1.75% of the loan amount and is usually financed into your loan. If you put down less than 10% when purchasing your home, you will also have to pay monthly mortgage insurance premium (MIP) which currently costs 0.80% of the loan amount annually.
How to Get Rid of PMI on an FHA Loan
Private Mortgage Insurance, or PMI, is something that is typically required by lenders when a borrower puts down less than 20% for their home loan.
The best way to get rid of PMI on an FHA loan is to refinance the loan into a conventional mortgage when you reach 80% loan-to-value (LTV). FHA loans require borrowers to pay PMI for the life of the loan unless you make a down payment of 10% or more. If you have a down payment of 10%, you can cancel PMI after 11 years.
Mortgage Insurance Premium Cancellation
An FHA loan is a popular choice for first-time home buyers because it only requires a small down payment of just 3.5%. However, once you have an FHA loan, you will be required to pay Mortgage Insurance Premiums (MIP) every year for either 11 years or the lifetime of the loan, depending on how long you have had the loan.
The MIP is there to protect the lender in case you default on your loan. MIP is required on all FHA loans regardless of how much money you put down. The good news is that once you reach 78% loan-to-value (LTV), you can cancel your MIP payments. LTV is calculated by taking the original loan amount and dividing it by the appraised value of the home.
For example, if your FHA loan was for $200,000 and your home appraises for $220,000, then your LTV would be 91% and you would not yet be eligible to cancel your MIP payments. However, if your home’s value appreciate to $250,000, then your LTV would drop to 80% and you could cancel your MIP payments at that time.
Cancelling MIP payments can save you a significant amount of money every month, so it’s definitely something to strive for if you have an FHA loan.