Razor Mortgage LLC Blog

Well here we are in the continuing “mortgage meltdown” and as underwriting standards continue to tighten FHA where more and more business is being directed has come out with a new mortgage insurance table.  It used to be that when a person received an FHA mortgage they paid the same mortgage insurance premium as everyone else, regardless of their credit standing.   Hence if you had great credit and you were approved for an FHA mortgage you paid the same premium as someone who had a “recent” bankruptcy or other derogatory credit items. Was this fair? Probably not!  FHA realizing that the “sub-prime” mortgage market has disappeared, and realizing that many people that previously would have been placed there has logically made the choice to ladder the premiums on MIP.  This ladder is based on a combination of borrowers credit score and the loan to value.

Let us start simply on what Mortgage Insurance Premiums are.  Quite simply MIP is the equivalent of PMI or Private Mortgage Insurance.  When you put a down payment of less than 20% to purchase your house the bank receives insurance from the Federal Housing Administration to assure that in the event you do not make your payments and they have to foreclose, this insurance will kick in order to alleviate or remove their loss. Also note that in the case of a a refinance into an FHA mortgage this insurance is required regardless of what your loan to value is and is required for a minimum of five years from the date of inception of the loan (please note that there are different rules for 15 year mortgages, but for simplicity I am only talking about 30 year mortgages). 

The across the board rate used to be that the borrower would pay an initial 1.5% as a funding and then a monthly fee of .5% divided by 12 of the loan amount.  The initial funding fee does not actually have to be paid at closing (except when doing a cash out refi) and can just be added to the loan balance. This was some of the most affordable mortgage insurance rates available as I have seen these monthly premiums as high as 2.75%-nearly five times higher than FHA MIP. 

The new FHA “Risk Based MIP” take effect on July 14, 2008 and are still VERY VERY reasonable, and are as follows:

The first number in each box represents the “upfront premium” and the 2nd number represents the monthly premium i.e. 125/50 would be 1.25% of the loan principal loan amount charged up front (could be financed into the mortgage, except on cash out refi) and .5% of the principal loan amount would be the monthly premium (divide by 12 to get actual monthly charge).

FHA still represents one of the most reasonable mortgage loan products and is available to almost all purchasers and persons wishing to refinance!  As the mortgage world continues to adjust to the changes in our marketplace it presents one of the best values in mortgages today for many borrowers.

The newspapers have been touting the “meltdown” in the mortgage and real estate world which has caused some markets to react even more negatively than they would under the same circumstances without all the neagtive press and television coverage.  The fact remains that many banks did  (more…)