Comments on: FHA Loans, Mortgage Insurance Premiums, and My Extra Income

By: John

John — Wed, 07 Oct 2009 06:41:11 +0000

I just went under contract on a house last week. I also looked at FHA loans but decided against that due mainly to the 1.75% upfront and the 5 year minimum MIP premium. I was able to put only 8% down but with the first-time tax credit and no car payment at this time I’m going to reach 80% L/V within 6-7 months of closing. I will then resume normal monthly payments on a 15-year fixed mortgage. Without the tax credit I probably would have waited a year before buying.

By: Diane Houston (Mortgage Professional, California)

Diane Houston (Mortgage Professional, California) — Tue, 06 Oct 2009 04:30:45 +0000

Hi Laura,

I checked a HUD website and if I interpreted it correctly, here are a couple of opinions for you. I hope this help.

The upfront fee looks like you can pay it either upfront or totally in the loan, but not a combination. It also looks like the fee is required for condos, too.

By the way, here is another thought for you. If you are lucky enough to have extra income once in a while and the value of your home increases at a good pace, perhaps the combination can bring your mortgage down to 80% before 5 years are over. If rates are good when this happens, you could refinance into a conventional loan, have no monthly mortgage insurance and get a refund on a portion of the UFMIP.

By: Laura

Laura — Mon, 05 Oct 2009 02:49:59 +0000

Thanks everyone for the help. Even as we have read through several books, we still feel that we so much to learn about mortgages!

By: Kevin@OutOfYourRut

Kevin@OutOfYourRut — Sun, 04 Oct 2009 17:47:21 +0000

Nickel (4)–I left the mortgage business at the tail end of last year, and while waiving upfront MIP on condos was the rule for many years, I THINK (!!!) it’s been added since.

The regs are confusing, even for people who are in the business. As a practicioner, you rely on interpretations rather than the publications, because the publications are prepared in legalese and not meant to be comprehended by the masses.

By: Kevin@OutOfYourRut

Kevin@OutOfYourRut — Sun, 04 Oct 2009 17:42:28 +0000

Laura–on the refund of MIP by FHA… the part that’s refunded is the upfront premium, the 1.75% that’s added to your loan amount. Since the monthly premiums are “pay as you go” they aren’t refunded.

The upfront MIP is only refundable if the loan is paid off within the first five years of the term, and then on a pro rata basis. If you refinance from one FHA loan to another, the refund is deducted from the new up front amount.

If you refinance to a non-FHA loan, or sell the house, the refund is mailed to you after the closing, usually several weeks later.

Hope this helps!

Kevin

By: Broke MBA

Broke MBA — Sun, 04 Oct 2009 17:24:15 +0000

Laura, I can relate to the craziness of trying to buy your first home. We are currently under contract and are in the process of assuming a 15 year fixed conventional mortgage. We are putting 10% down and taking out a 10% piggy back loan in order to avoid PMI. Was the down payment amount your primary reason for taking out the FHA? We didn’t do much research regarding FHA loans.

Thanks!

By: Tim

Tim — Thu, 01 Oct 2009 14:52:39 +0000

@Laura
You can pay it upfront, we did actually but not really by choice. We had planned on rolling it into the mortgage but the bank didn’t have the paperwork ready until the morning of the closing so I didn’t have a chance to look them over. They ended up *not* rolling the upfront fee into the mortgage and I had to pay it at closing. By this point I just wanted to close on the house so I didn’t make them redo the paperwork.

By: Sarah Jessica

Sarah Jessica — Wed, 30 Sep 2009 03:49:25 +0000

If you decide you want a new-with-warranty, go to the back of a big box home improvement store. The scratch and dents are back there for a few hundred less – it’s ridiculous, and often the blemish, such as it is, will be hidden by your kitchen’s cupboards or design.

As far as brands go, we had a GE for 30 years, and then an Amana that lasted for just 6, which was really disappointing after that long life of the GE. I think this is a situation where they just don’t make ‘em like they used to. I’m sure someone else will have better brand advice than I’ve provided here.

Finally, the freezer-on-the-top models are said to be the most energy-efficient.

By: Laura

Laura — Wed, 30 Sep 2009 00:41:48 +0000

Ok,I finally found a clearer answer in the handbook they sent for first time buyers:

When you get a mortgage loan insured by FHA, you have to pay an up-front insurance premium, which can be included in the loan you get through a lender. You will also have to pay a monthly insurance premium
that is added to the regular mortgage payment. FHA uses the premiums to pay the lender if you default on your mortgage.

By: Laura

Laura — Wed, 30 Sep 2009 00:33:15 +0000

If you followed me on Twitter, you probably saw how unproductive that phone call was. I wanted to see about paying the upfront MIP for the condo, which was in my good faith estimate. The CSR said that was normal. I then asked about paying the fee upfront, so we can lower the total loan amount.

I basically got a confusing answer. I did receive the following answer,though, through email:

The UFMIP must be entirely financed into the mortgage (except for any amount less than $1) or paid entirely in cash and all mortgage amounts must be rounded down to a multiple of $1. Any UFMIP amounts paid in cash are added to the total cash settlement requirements.

Handbook 4155.2: 7.2.b

====
Thanks ML for the Craigslist tip. I check them out weekly and I see some good deals occasionally.

By: MojoLounge

MojoLounge — Tue, 29 Sep 2009 15:30:33 +0000

I would suggest using craigslist and buy your appliances used. Thanks to HGTV there is a stainless kitchen craze going on. This results in a glut of appliances that are less than 5 years old for sale on craigslist. For example, in the forclosure I bought in January I got a fridge, gas stove, dishwasher and microwave all under 5 years old and all off craigslist for a total of $920. Even if one of them were to fail, I am way ahead of forking out new appliance prices. Same concept applies to laundry rooms due to the front loading washer and dryer craze.

By: Nickel

Nickel — Tue, 29 Sep 2009 14:03:48 +0000

Tim: I looked into the upfront premium when first reading Laura’s post (prior to publication), and I think based on what I found that there is no upfront premium on a condo purchase. The HUD website is very difficult to navigate, though, so it’s hard to find concrete info. I’m sure Laura will be able to weigh in later with more info.

By: Tim

Tim — Tue, 29 Sep 2009 13:45:04 +0000

Thanks for the refund tip. We just bought a home with a FHA backed mortgage last month and I was trying to figure out if either the upfront MIP or the monthly payments were tax deductible.

One thing you might also want to point out is that with a FHA loan there is also an upfront MIP at closing which is equal to 1.75% of the loan (I think it’s 1.75%). People typically role that into the mortgage but sometimes you just pay it at closing too.