After the application of a home loan, you will receive two documents, a loan estimate, and closing disclosure. On the surface, these documents are identical but they both serve slightly different purposes. Up Next: Expenses To Expect In The First Year Of Homeownership Here is what you need to know about the differences between these […]
Understanding the New FHA Mortgage Insurance Premium
Do you have an FHA Kansas City home loan? Then listen up! The FHA has reduced its mortgage insurance premiums for U.S. homeowners using the agency’s flagship mortgage programs. Although you may not be able to cancel your mortgage insurance, you now have a way to lower your monthly payment. First-time homebuyers can also finance new homes for less than before.
What is the FHA Mortgage Insurance Premium?
The Federal Housing Administration, or FHA, is a mortgage insurer. Just like other insurers, the FHA collects regular payments known as “premiums” which fund the claims it pays to actual lenders. FHA mortgage insurance premiums (MIP) are split into two parts:
- Annual premiums
- Upfront premiums
For the first time in over 10 years, the FHA has decreased their annual mortgage insurance premium rate. The upfront insurance for home loans in Kansas City remains the same at 1.75%. Since it does not count against your loan-to-value, most people will add their upfront MIP to their mortgage amount.
What This Change Means for Borrowers
On average, current borrowers will pay significantly less for their financing than those who applied for a mortgage just six months ago. If you are ready to purchase a home or refinance your current FHA loan, you will certainly see the savings. The new premium will help expand many people’s access to mortgage credit and is expected to lower the cost of housing for the approximately 800,000 households who use FHA annually.
The premium change applies to purchases, and cash-out and streamlined refinances. FHA borrowers can now lower their mortgage insurance premium and their interest rate by .5% when they refinance. The new premium will make homeownership more affordable for over two million Americans in the next 3 years.
Currently there are many borrowers who can lock a 30 year, fixed-rate home loan in Kansas City with a FHA interest rate of less than 4%. Keep in mind, you will still need to meet the loan’s minimum down payment. However, you will now be paying .5% less on your required FHA mortgage insurance premium.