Atlanta Mortgage Lender

How To Get Rid of your FHA Mortgage Insurance Premium (MIP)

There are two types of MIPs

First, a little background on FHA loans.  When you take out an FHA loan, you pay the Mortgage Insurance Premium (MIP) in two ways.  When your loan is closed you pay the 1% Up Front MIP which is normally rolled into your mortgage amount but can also be paid at closing directly.  As an example, if you closed on a $200,000 puchase with 3.5% down, then your upfront MIP would be $1930.  The second type of MIP is the monthly.   For many months following your closing you will pay the monthly MIP in an amount which varies depending on the chart shown below.

How you can cancel the Upfront MIP early

How you do this depends on what type of mortgage you have.  For the purposes of this discussion we will limit your types of mortgage to two:  1) 15 year fixed 2) Any other FHA mortgage.

If you have a 15 year fixed mortgage, then canceling the premium is as simple as paying the balance of your mortgage down to 78% of the original loan to value (LTV).  The LTV is your current loan balance divided by the lesser of the purchase price or the appraised value of your home at the time you took out your current FHA mortgage.  With a 15 year loan, the 78% LTV is the only requirement, and you can get there either by paying down the principal on your own, or just waiting for the principal to reach 78% based on the normal payment schedule for your loan.  At today’s rates, if you just make your normal payment, then the MIP will be removed in about 26 months.

If you have any other type of FHA loan, then two things must happen to cancel the monthly MIP.

1. LTV reaches 78% (based on lesser of purchase price or appraised value at the time you took out your FHA loan)
2. Monthly MIP has been paid for a minimum of 60 months.

Note that in either case, there is no action required on your part to remove the MIP.  FHA will remove the MIP automatically for you when the conditions discussed are met.

I have a 30 year loan and I want to get rid of my MIP

We are often asked this question, so we have created a mortgage calculator which is specifically intended to help you rid yourself of your MIP at the earliest possible time.  If you plan ahead then you can remove your MIP in 5 years without a tremendous amount of pain.  Let’s take our original example of a $200,000 purchase with 3.5% down on a 30 year fixed at today’s rate of 4.00% (APR 4.438%).  Rolling in the MIP gives you an initial loan amount of $194,930.  The monthly principal and interest payment on that loan is $930.63.  Your monthly MIP payment is 1.15% of $194,930 divided by 12 months which is $186.81.  Using our FHA MIP Removal Calculator (click the link to calculate for your own loan), you can remove this MIP in 60 months by paying an additional $288.09 per month starting with your first payment.    At the end of month 60, your $186.81 MIP payment would drop off and if you chose to go back to the standard payment, then you could drop your principal and interest payment back to $930.63 and you would be rid of the $186.81 MIP payment.

Of course, your other option at that point would be to continue paying the additional $288.09.  If you continued paying this amount for the life of the loan, your loan would pay off in 19 years.  However, since you are already accustomed to the higher payment with the MIP, you could now add that $186.81 to your additional principal payments.  If you did this, then your loan would pay off in just over 15 years.

This method gives you the flexibility of reverting to the 30 year payment if you need to, but gives you most of the advantages of the 15 year mortgage.

Exceptions

Note that there are two exceptions to the cancellation rule

• Condominiums
• 203k Renovation Loans

Because these are not considered MMI loans by HUD, you will be required to keep the MIP for the life of the loan.

HARP II Refinance Program

The Government has recently announced that HARP II will be launched by the end of 2011.  While more specific details on dates are coming “around November 15″, I wanted to highlight what we do know today.

History

HARP was launched in the spring of 2009 to assist homeowners with limited equity.  The three requirements were that 1) your mortgage was backed by Fannie Mae or Freddie Mac.  2.  Your mortgage needed to have been purchase by Fannie or Freddie prior to June 1, 2009 and 3.  Your Loan To Value must be 125% or less.  Mostly because of the LTV limit, HARP failed to deliver as promised.

Enter HARP II

On October 24, 2011, the government announced they were expanding the HARP program.  These are the key features:

• LTV Limits Removed – No matter how far you may be underwater, you can still use the HARP program.
• Limited Liability to the mortgage company who originates your loan – In the past, due to “reps and warrants” many lenders have been fearful of fulling participating in the HARP program.  This change allows more lenders to participate with lower risk to them should the loan default.

Stay tuned for further details on the HARP program coming on or around November 15, 2011.  To keep abreast of changes, simply subscribe to our blog.

The Ryan Mortgage Team is powered by Envoy Mortgage and we are an Atlanta, Georgia based mortgage lender.

Fannie Mae Cash Out Loans for Cash Only Investors – Rule Change

Fannie Mae is now offering a refinance for cash buyers within 6 months of purchasing the property — called the Delayed Financing Exception.  Prior to now, you were required to wait 6 months before purchasing a new investment property, however, with this rule, you can refinance immediately after closing the cash deal assuming you meet a few criteria.  Take a look at the video above to review these criteria and to see the new rule in detail.  Remember that this works for cash buyers who are investors or for those who purchased a primary residence or vacation home with all cash.

The Credit Scoring Model

We often get asked, what are the 2 most important things I can do to improve my credit score? First, pay your bills on-time. That’s the easiest and most concrete portion of your score. If all of your bills are paid on time, then you get full credit for 35% of your total credit score.

Once you have ensured that you are making payments on time, then the next biggest thing you can do is to watch your outstanding balances versus your credit limits. To get the best score possible, you have to keep those balances at 30% of the limit or less. If you cannot get them down to 30% of the limit, however, don’t worry, you get nearly just as much benefit from simply keeping below the 50% mark.

Here’s a chart showing how your score is broken down: