South Orange County Blog from Bob Phillips

An Insider’s Guide to Reducing Your Remaining Mortgage Years Through a Smart Refinance

Reasons_Why_You_Should_Consider_Refinancing_Your_MortgageIs it always the best idea to pay off a mortgage over 30 years? While it may help a homeowner lower his or her monthly payment, it can mean paying more in interest and waiting several more years to build sufficient equity in the home.

The question is…how can a homeowner reduce the amount of time it takes to pay off a mortgage by refinancing his or her loan? A few methods for reducing your mortgage term are explained below.

Refinance From A 30-Year Mortgage To A 15-Year Mortgage

For those who don’t want to wait any longer than necessary to pay off their home loan, it may be possible to refinance to a shorter-term mortgage. Instead of taking 30 years to pay off the loan, a homeowner can opt to pay off the loan in 10 years or 15 years. The shorter the term, the less interest will be paid on the loan.

Get A Lower Interest Rate With A Shorter-Term Mortgage

Another good reason to shorten a mortgage term is because it could lower the loan’s interest rate. Instead of paying 4.5 percent over 30 years, it may be possible to pay 4 percent over 15 years. This gives the mortgage holder the chance to build equity in the home faster as they are paying more of the principal balance with each payment. While a mortgage holder can pay more than the minimum amount on a longer-term mortgage each month, it could still end up costing more overall due to the terms of the loan. Be sure to ask your mortgage professional about your options here.

Stop Paying Mortgage Insurance

Those who are paying mortgage insurance could be paying $200 or more per month for nothing more than the right to protect the lender against default. Homeowners who could qualify for a conventional loan should attempt to refinance to a conventional loan if possible to avoid making this payment. Instead of going toward mortgage insurance, put that money toward the principal balance on the loan. There are, of course, risks involved with this approach so be sure to fully discuss them with a professional.

How Can Someone Refinance A Loan?

Now that you know how to pay off your mortgage faster through a refinance, how can someone go about refinancing a home loan? Fortunately, refinancing is similar to the process of securing the home’s first loan. All a borrower will need to do is find a lender that he or she wants to work with, find an offer that works for that borrower and then close on the deal. Although there may be closing costs associated with the new loan, some lenders may be willing to waive some or all of them on a refinance.

Paying off a mortgage as soon as possible can help a borrower save money while building equity in the home at a faster pace. This gives a homeowner financial strength as well as the flexibility to sell the house in the future without worrying about losing money in the deal. To find out more about refinancing options, talk to a mortgage lender.  I have a few excellent local choices, if you need a recommendation for one.

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The FHA Hawk Program for New Homebuyers is Coming: Here’s How It Affects Your Mortgage Insurance Premiums

Mortgage tipsThe FHA offers many new programs and incentives for new homebuyers to take advantage of so that they can be part of the effort to ease the credit crisis. If you are in the process of shopping for a mortgage prior to shopping for your new home, it can benefit you to learn about programs that you may qualify for that are being created by the Federal Housing Administration and piloted.

One such plan, which is has been approved as a four-year pilot program, is referred to as the FHA HAWK Program. Read on to learn how this program works and how it can affect mortgage insurance premiums.

What Is The HAWK Pilot Program?

The FHA HAWK program, which stands for Homeowners Armed With Knowledge, is designed to help first-time homebuyers make educated decisions when borrowing and buying a home. Individuals who are eligible to participate must qualify and meet the definition of first-time home buyer.

They will also be required to complete a housing counseling and education program that is available through HUD where they will learn financial information that can help them make smart home buying decisions.

Some of the topics covered in the educational program include: how to better manage finances, mortgage options, how to evaluate affordability, understanding your rights and the responsibilities that come with homeownership. Upon completion of the program, the applicant can submit their application for an FHA-insured mortgage and receive specific FHA mortgage insurance pricing incentives that will lower premiums.

What Type of Mortgage Insurance Incentive Will You Receive?

Once you participate in the program, the Federal Housing Administration will give all of the borrowers who qualify for the incentive a mortgage insurance premiums incentive by applying a 50 basis point reduction in the upfront premiums and a 10 point reduction in the annual premium starting at the time the loan originated.

As long as the borrower stays in good standing with their lender, they will receive these incentives and fee reductions for the life of the loan. This brings the upfront premiums down from 1.75 percent to a more manageable 1.25%. Add in the fact that you are saving on annual premiums that range between.45 and 1.55 percent, and you can see how beneficial this program can be over the period of 30 years. Finance experts predict that the average buyer will see a savings of $325 per year, which is a savings of $9800 over a 30 year loan term.

The FHA is piloting this new HAWK program in an effort to reduce delinquency of borrowers who borrow from FHA-insured lenders and to also reduce the costs of loan processing. By offering first-time homebuyers a discount to learn about the market, the FHA is trying to battle the ongoing credit crisis and in the same time service more educated buyers. If you would like to learn more about how you can reduce the mortgage insurance premiums that you pay initially and throughout the life of your loan, contact your trusted mortgage agent and discuss your options when it comes to the HAWK program.

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10 Questions You Should Ask Yourself Before Applying For A Refinance Mortgage: Part 1

10 Questions You Should Ask Yourself Before Applying For A Mortgage Part 1If you are considering applying for a refinance, it is important to understand the mechanics of your mortgage loan. Before you sit down to speak with your loan officer, you should consider preparing a list of questions you feel may need to be answered.

Typically, your loan officer will be available to assist through the entire mortgage process. Here are some questions that you may need to get answers to before completing your application:

1. What Type Of Loan Is Best For Me?

Your loan officer can discuss the various loan programs available to help you refinance. Some borrowers will benefit greatly from adjustable rate mortgages while others prefer fixed rate. However, other borrowers may find a fixed rate is the best option. Discuss various loan terms such as 30-year or 20-year mortgage loans.

2. What Documents Are Required?

Be prepared to provide your loan officer with several documents. The most common documents include pay stubs, bank statements and tax returns. Loan officers will also need a complete list of debts including auto payments, credit card payments and student loans.

3. What Costs Are Involved?

Prior to a loan closing you will be required to pay some costs up front. These may include appraisal fees, credit report fees and application fees.

Discuss all these costs with the loan officer to determine how much money will be required prior to the loan being approved. In addition, discuss any funds that will be required to complete the loan closing.

4. Can I Select My Own Appraiser?

When you apply for a refinance loan, lenders will require a property appraisal. Lenders typically maintain a list of approved appraisers and supply those lists to the loan officers. Typically, the loan officer will assign an appraiser to review the property. Borrowers generally have no input regarding the choice of appraisers.

5. When Will I Get A Good Faith Estimate?

Good Faith Estimates must be issued after you have completed your loan application. A second GFE is typically presented along with the HUD1 prior to closing. Keep in mind, the GFE is only an estimate of costs and that actual costs may be slightly higher or lower.

Never hesitate to ask your loan officer any questions you may have. The more questions you have addressed during the application process, the less likely you will be to be confused at the time of your mortgage closing.

Keep in mind, your loan officer is there to answer your questions and guide you through the entire loan process. For additional questions you should ask, check out tomorrow’s blog post.

Don’t Have a Preferred Loan Officer?  I have a few great lenders to wholeheartedly recommend.  Shoot me an email or give me a call.

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Reasons Why You Should Consider Refinancing Your Mortgage

Reasons Why You Should Consider Refinancing Your MortgageRefinancing a mortgage is a golden opportunity to lock in today’s low interest rate for the next 15 or 30 years. While interest rates now are still low, there’s a good chance they will be heading up in the coming months.

The Fed won’t maintain the current bond purchasing level forever, and just as rates spiked in September when the Fed hinted the bond purchasing would change, rates will spike even more when purchasing levels actually do change.

As interest rates remain very low for 30-year and 15-year mortgages, homeowners can benefit greatly from a refinance. Several types of people in particular should consider refinancing.

Carrying A High Rate

Anyone with an interest rate well above today’s level should think about a refinance. Unless the homeowner is planning to sell within the next few years, a refinance will almost always save money in the long run if the rate can be lowered by at least a percent.

Switching From FHA To Conventional

Given that FHA mortgages now carry mortgage insurance premiums for the life of the loan, it makes a lot of sense for borrowers to switch away from them when they can. Refinancing may be possible once the homeowner has built up enough equity to qualify for a mortgage from a traditional lender, without the burden of mortgage insurance.

ARM Coming Up On Adjustment

The low rate of an adjustable rate mortgage sticks only for the first few years of the mortgage. After this point, the rate adjusts each year based on market trends.

Rather than paying the adjusted rate, which is almost always higher, homeowners can refinance into a new fixed rate mortgage to lock in one of today’s low fixed rates for the duration of the mortgage.

Cash Out To Consolidate Debt

Homeowners carrying high-interest debt, like credit cards and personal loans, can often benefit from consolidating it into their mortgage. As long as they maintain at least 20 percent equity in their home, they can get a cash-out refinance for an amount higher than their current mortgage balance. They can then use the difference to pay off high-interest debt. Personally, I do not recommend this last tactic. It should only be used as a final resort.

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3 Tips To Sidestep These Common FHA Loan Hang-ups

3 Tips To Sidestep These Common FHA Loan Hang-upsFHA loans are becoming increasingly popular these days as potential homeowners are not able to qualify for mortgages from traditional lenders. The FHA insures these high-risk loans, in turn allowing borrowers with low down payments and less than perfect credit to purchase homes and bolster the housing market.

However, getting through the loan process with the FHA is more difficult than with a traditional lender, and you may need to cope with some of these common loan hang-ups.

Property Condition

You can’t buy just any property with a FHA loan. The appraiser must deem it to be livable, without any conditions that could jeopardize health or safety. If the home has chipping paint, a leaky roof, or a wobbly banister, the financing could fall through.

Sometimes you can get the seller to make the needed repairs to pass inspection, but in other cases, you may have to go an alternate route. The FHA 203K streamline loan allows you to borrow up to $35,000 over the purchase price of the home for repairs and updates. It’s important to check with your local mortgage lender to determine any specific local FHA 203k loan details.

Low Appraisal

In addition to inspecting the property, appraisers also estimate its market value. These estimates are based on the property’s features and a comparison to similar properties that have sold recently. If the appraisal is low, the FHA loan funding could fall through because the FHA will not let you borrow more than the home’s appraised value.

Rather than trying to scrape together a bigger down payment, just take the information to the seller to renegotiate the purchase price. The seller will likely recognize that other buyers would be in the same boat, leading the seller to agree to a lower purchase price.

High Debt-to-Income Ratio

Your FHA loan may encounter a snag in the underwriting process if your total debt payments, including your new mortgage, would be a high percentage of your income. If you are in this situation, ask your lender to try running you through the automated underwriting program called TOTAL.

The process is quick, and often you can make up for a high debt-to-income ratio with other compensating factors, like a larger down payment or a cash reserve of several months of mortgage payments.

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Why Should One Consider Refinancing Their Mortgage Now?

Why Should One Consider Refinancing Their Mortgage Now?Refinancing a mortgage is a golden opportunity to lock in today’s low interest rate for the next 15 or 30 years. While interest rates now are still low, there’s a good chance they will be heading up in the coming months.

The Fed won’t maintain the current bond purchasing level forever, and just as rates spiked in September when the Fed hinted the bond purchasing would change, rates will spike even more when purchasing levels actually do change.

As interest rates remain very low for 30-year and 15-year mortgages, homeowners can benefit greatly from a refinance. Several types of people in particular should consider refinancing.

Carrying A High Rate

Anyone with an interest rate well above today’s level should think about a refinance. Unless the homeowner is planning to sell within the next few years, a refinance will almost always save money in the long run if the rate can be lowered by at least a percent.

Switching From FHA To Conventional

Given that FHA mortgages now carry mortgage insurance premiums for the life of the loan, it makes a lot of sense for borrowers to switch away from them when they can. Refinancing may be possible once the homeowner has built up enough equity to qualify for a mortgage from a traditional lender, without the burden of mortgage insurance.

ARM Coming Up On Adjustment

The low rate of an adjustable rate mortgage sticks only for the first few years of the mortgage. After this point, the rate adjusts each year based on market trends. Rather than paying the adjusted rate, which is almost always higher, homeowners can refinance into a new fixed rate mortgage to lock in one of today’s low fixed rates for the duration of the mortgage.

Cash Out To Consolidate Debt

Homeowners carrying high-interest debt, like credit cards and personal loans, can often benefit from consolidating it into their mortgage. As long as they maintain at least 20 percent equity in their home, they can get a cash-out refinance for an amount higher than their current mortgage balance. They can then use the difference to pay off high-interest debt.

I have a couple of lenders to recommend, who have served me well for the past decade or two. Shoot me an email or give me a call if you’d like their contact info.

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FHA Trims Waiting Period for Borrowers Who Experienced Foreclosure

By Esther Cho, of DSNews.com, 8/19/2013

The Federal Housing Administration (FHA) is allowing borrowers who went through a bankruptcy, foreclosure, deed-in-lieu, or short sale to reenter the market in as little as 12 months, according to a mortgage letter released Friday.

Borrowers who experienced a foreclosure must wait at least three years before getting a chance to get approved for an FHA loan, but with the new guideline, certain borrowers who lost their home as a result of an economic hardship may be considered even earlier.

For borrowers who went through recession-related financial event, FHA stated it realizes “their credit histories may not fully reflect their true ability or propensity to repay a mortgage.”

In order to be eligible for the more lenient approval process, provided documents must show “certain credit impairments” were from loss of employment or loss of income that was beyond their control. The lender also needs to verify the income loss was at least 20 percent for a period lasting for at least six months.

Additionally, borrowers must demonstrate they have fully recovered from the event that caused the hardship and complete housing counseling.

According to the letter, recovery from an economic event involves reestablishing “satisfactory credit” for at least 12 months. Criteria for satisfactory credit include 12 months of good payment history on payments such as a mortgage, rent, or credit account.

The new guidance is for case numbers assigned on or after August 15, 2013, and is effective through September 30, 2016.” ( End of Esther’s article.)

This MAY be good news for someone wanting to buy a house again, only a year after suffering a recent mortgage difficulty.  I emphasized the word MAY because the terms of FHA loans have become more difficult to live with in the past few months, with a comparably high monthly mortgage insurance premium.

Still, the upper loan limit for FHA loans is $729,750 in Orange County, so this is one of the few – if not only – ways to become a homeowner again, so soon after a financial setback.

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Whatever You Do, Don’t Make These Common Mortgage Mistakes

Whatever You Do, Don'ty Make These Common Mortgage MistakesAre you applying for a mortgage on your home? Keep in mind that a mortgage is a major financial decision and choosing one will have a significant impact on the rest of your life.

Many people go into this decision without understanding all of the essential mortgage information they need to know. This means that they may not make the best choices which could result in paying much more than they need to.

If you want to save yourself from throwing away your hard earned money, here are a few common mistakes to avoid:

Trying To Time The Mortgage Interest Rate Market

Many people will wait too long to make a decision to lock in their mortgage rate, trying to wait until they think that the rates have hit bottom. However, unfortunately most of the time this leads them to wait too long and end up with a higher interest rate.

If you are waiting things out, keep a very close eye on the economic indicators. Better yet, your trusted mortgage professional would be a good source of information about the fluctuations of interest rates.

Forgetting About Closing Costs

In addition to saving up a down payment for your mortgage, don’t forget to factor in the closing costs. These can range from two percent all the way up to six percent of the value of your home.

Make sure that you have budgeted for this in advance, so that these fees don’t catch you by surprise.

Not Considering All Loan Options

There are many people out there who haven’t considered certain loan products, such as an adjustable rate mortgage, because they just don’t understand how they work. However, you might be missing out on an option that would really work well for you.

Make sure you do your research and gain an understanding of the loan options available to you.  Ask your loan officer for guidance in this area.

Looking At Just The Mortgage Rate

Remember that the mortgage interest rate is only one factor that you should consider when choosing a mortgage. Don’t forget to also consider the time frame of the mortgage closing, any restrictions on lump sum payments and any other important factors.

Following these steps will help you avoid a few of the common mistakes people make when choosing a mortgage.

An 8-Point Financial Health Day Checklist

An 8-Point Financial Health Day Checklist

Here’s a new article by one of my favorite bloggers, Tara-Nicholle Nelson:

“Who among us hasn’t needed a mental health day at some point in our lives? In the vernacular, this just suggests a day where we take the day off from our work and household obligations to do nothing but relax. And relaxation isn’t the only reason we take little time-outs from our daily lives: we call in sick to take care of our medical issues and we leave work early to watch our kids’ sporting activities.

But most of us don’t set aside the time we should to manage our personal finances – and managing them effectively definitely requires some time and attention.

Next time you get a personal day off or are on vacation, consider declaring it your ‘Financial Health Day’ and spending at least half the day tending to your money matters with laser beam focus. Ideally, do it on a weekday (and not a holiday), when the various financial institutions and vendors you may need to contact will be reachable via phone.

When you’re ready to take your Financial Health Day, get organized by listing the things you’ll want to handle that day line by line – don’t forget to include the following:

1.       Check your bank account statements. It’s very easy to set subscription services and bill payments up for automatic deduction from our checking accounts, then just forget them entirely – hence the phrase, “set it and forget it!” That’s actually the point, you might think. Financial Health Day is the day to take a half hour and just review your checking account statements from the last couple of months, line by line, looking for any subscriptions you no longer want or need. Then cancel them! Common ones include cable, app and magazine subscriptions.Also, watch for auto-paid bills that have increased without your noticing, and give the providers a call to figure out why they went up and/or otherwise decide how you want to get them under control. Common offenders include home and auto insurance, cell phone bills, utility bills and the like.One more thing – if you are so inclined, consider setting your checking accounts up on a service like Mint or Manilla – these free services not only allow you to manage multiple accounts in one place, they also offer instant charts and graphs that surface where your actual spending patterns may not jive with what you say your priorities are. For example, you might tell the service that your food bill should be 10% of your monthly spending or less; the service may tell you, in turn, that you’re actually spending 15% of your cash out on food. Auditing your accounts for spending that is out of whack in this way can supercharge your cost-cutting goals.

2.       Check your mortgage interest rate. The going rate for a 30-year home loan this week is 3.57 percent, according to Bankrate; 15 year mortgages are running at 2.97 percent.  (These are prime interest rates, which take A-list credit scores and ample home equity to obtain.) But that doesn’t necessarily mean that every homeowner with a mortgage rate over 4 percent should refinance!  Refinancing your home loan can cost money, and it definitely extends the life of your mortgage (unless you make an intentional, strict plan to pay it off early). Talk with your financial planner and mortgage professional to do the math and see whether you should consider refinancing your home loan.  (Hint: set your FHD to-do list up in advance, so you can make appointments with these and other professionals for that day.)

Additionally, keep one important thing in mind: your mortgage interest is the basis for the largest tax advantage of homeownership. If you refinance your home loan for one with a dramatically lower mortgage interest rate, you need to account for the possible increase in income tax liability that may result – it may offset some of the monthly savings you realize.  Again, your financial planner and CPA should be able to help you calculate and plan for this, before you make any moves.

3.       Check your PMI.  If you put less than a 20 percent down payment into your home when you bought it, you were likely required by your lender to have a Private Mortgage Insurance (PMI) policy.  PMI – insurance that protects your lender in the event you default on your mortgage – is not cheap. It can add hundreds of dollars to your monthly mortgage payment. FHA loans have their own version of PMI called a mortgage insurance premium, or MIP, which can run even more than PMI!

Fortunately, when the combination of paying the balance down and increases in its fair market value results in you having at least 20% equity in your home, you might be eligible to have the PMI removed from your mortgage loan, so you can stop paying for it.  Even more fortunately, home values have been on the rise in many areas at a much faster rate than at any time since the recession. Your Fiscal Health Day is the perfect time to talk with your mortgage professional and your lender about what it will take to get the PMI removed from your home loan  – you might even get a truly pleasant surprise and find that you’re eligible right now!

(Side Note: FHA loans with less than 20 percent down are required to have MIP for the first five years of the loan, regardless of how much the home’s value increases.)

4.       Check your insurance.  Gather up your homeowner’s and other insurance statements, or call your agent(s) up and ask for a review.  What you want to do is make sure that (a) you’re appropriately insured for your exposure, and (b) you aren’t paying more than you need to.  Things like dogs, household staff, pools, your roof materials and your travel habits all may impact what amounts and types of insurance policies you’ll need.  Talk with your insurance agent and your financial planner, if you have one, to sort these matters out, and don’t be afraid to shop around.

5.       Check your phone, cable and internet bills.  I had the same home telephone service provider my whole adult life until a couple of months ago. I decided I no longer needed a land line, but wanted to continue my internet service. Boy did I get the run-around when I called to make that change! So I hung up and called the number for a competing service provider about which I had heard rave reviews from my friends. After less than 20 minutes on the phone, I ended up switching services entirely and got home phone service, internet service and cable – including premium channels – for about 50 percent of what I had been paying for cable alone!

Don’t let brand loyalty or inertia cost you hundreds of dollars a year. Reevaluate your phone, cable and internet services at least every other year – you might be surprised at how increased competition among vendors and the practice of “bundling” these services has brought prices down, and service levels up. My internet is twice as fast as it was before, and I haven’t had one day down since I made the switch.  One caveat – do watch for discounted introductory rates that increase substantially six months or a year into the relationship.

6.       Check your savings.  Do you have an automatic savings plan in place?  If not, Financial Health Day is a great day to set that up with your bank.  If you do, it’s the right time to do a gut check: would it kill you to save an extra $50, $100 or $200 a month?  If you can afford to, tweak your savings on Financial Health Day.

7.       Check your credit.  Pull your own credit reports from all three bureaus via AnnualCreditReport.com. Scan the reports for any inaccuracies and any delinquencies that should have aged off your report but have not (7 years for most, 10 years for bankruptcies). Then, initiate disputes for any of these things you find. This can take some time, but Financial Health Day is the perfect opportunity to assertively manage your credit before you’re in refinance or home buying crunch-time.

8.       Check your debt.  Monitor all of your debt – from your mortgage, to your consumer debt to your student and auto loans – and put a plan in place for getting rid of as much of it as you can, as soon as you can.  Can you afford to make an extra payment toward your mortgage?  Can you pay that credit card off?  As you’ve worked through the rest of your finances, you have likely ‘found’ money, which you’ll now be saving and can redirect toward the very worthy aim of debt elimination. So, do!  Maybe you’ll find enough to pay something off outright – if not, perhaps you can use your Financial Health Day to set up a recurring extra payment or modify your existing auto-payments to increase them by even a small bit. But if all you can do is make a modest extra payment toward these things on your actual Financial Health Day itself, you’ll still end the day a little further ahead than you were when you got started.

And that’s not all!  There are plenty of other financial matters that make sense to allocate time and energy toward on Financial Health Day, from your estate planning to your investments. New York Times writer Ron Lieber has put together a resource-rich set of materials, including videos and a customizable checklist, for what he calls a Financial Tuneup – use them to round out the rest of your Financial Health Day or, if you’re like me, to set your agenda for Financial Health Day #2!”

You should follow Tara on Facebook!  I love reading her stuff!

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FHA : Monthly Mortgage Insurance Premiums To Rise April 18, 2011

Posted in FHA Mortgages by southorangecounty on March 4, 2011

FHA Mortgage Insurance Increase April 18 2011For the third time in 12 months, the FHA is changing its mortgage insurance costs. 

Effective for all FHA case numbers assigned on, or after, April 18, 2011, annual mortgage insurance premiums (MIP) will increase 25 basis points.

The change will add $250 to an FHA-insured homeowner’s annual loan costs per $100,000 borrowed, and applies to all borrower’s equally. Current FHA borrowers are unaffected.

To understand the FHA is to understand why premiums are rising.

As an institution, the Federal Housing Administration plays a much larger role in the U.S. housing market today than it did just 5 years ago. According to its own records, the FHA’s percentage of purchase money business in California and nationwide expanded from 4 percent in FY 2006 to 19 percent in FY 2010.

Rapid growth like this has strained the FHA’s capital and, indeed, in its official statement, the FHA alludes to this, stating that the MIP increase will “significantly strengthen” its reserves. By law, the FHA must maintain a certain minimum level of reserves.

FHA mortgage insurance varies by loan term, and by loan-to-value and, beginning April 18, 2011, the new insurance premiums are as follows:

  • 15-year loan term, loan-to-value > 90% : 0.50% per year
  • 15-year loan term, loan-to-value <= 90% : 0.25% per year
  • 30-year loan term, loan-to-value > 95% : 1.15% per year
  • 30-year loan term, loan-to-value <= 95% : 1.10% per year

To calculate your monthly mortgage insurance premium, multiply your starting loan size by your insurance premium, and divide by 12. 

There is no change planned to the 1 percent upfront mortgage insurance premium charged by the FHA.

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