FHA MIP -- What is it ?
FHA MIP is Federal Housing Authority or FHA "mortgage Insurance Premium" or MIP. It is required when you use an "FHA insured" mortgage to buy a home. You normally use an FHA mortgage if you can't afford to make the 20% down payment, normally required on a "conventional" bank mortgage. As an example and ignoring all the other incidental costs involved, if you were to buy a home priced at $100,000, to get a "conventional mortgage," you would generally be required to make a $20,000, (or 20%) down payment, leaving an $80,000 mortgage.
Because you can't afford to make such a large down payment on your home on Longboat Key or in Sarasota Florida, the U.S. government which wants to encourage home ownership, essentially guarantees repayment of "FHA" home mortgages with down payments of as little as 3 to 5%. This allows banks to provide a home mortgage to people, with otherwise good credit, so they can buy that $100,000 home in the example above when they have only $3,000 to $5,000 rather than the full $20,000, to use as a down payment.
Not everyone who buys a home in Sarasota Florida or on Longboat key with an FHA mortgage pays their bills. To cover the cost of those mortgages that do not get paid, FHA charges everyone with an FHA mortgage a small insurance premium, (called the MIP). Together, all those MIP insurance payments contribute to paying the costs of re-possessing and re-selling, often at a loss, the homes covered by defaulted FHA mortgages.
But the answer to the question, "for how long do we have to pay that MIP premium" is a little confusing.
If your FHA mortgage loan was made before July, 1991, you must pay the MIP for the whole term of your mortgage, normally for the full 30 years. The MIP is a percentage of the remaining debt, so it will become less as the remaining principle is paid down.
For FHA loans made after July, 1991 but before 2001, the number of years for carrying the MIP was set at closing depending upon the size of the down payment.
For new FHA mortgages starting in 2001, MIP must be carried for the first five years no matter what. But, after that, it will be dropped when your equity (or, the percentage of the home's current value that you own either by making mortgage payments or by increases in the value of the home), reaches 22% of the original appraisal (or, the value of the home when you bought it.)
Here's an interesting twist. It is possible, if you have owned your current home for a while and had a HUD/FHA mortgage that you may be owed a refund on your MIP insurance. You can check this out at The HUD refund website
It is a bit confusing. But, that is just one more reason why when you think about buying a home, you need a Realtor® and let him or her explain the many facets of buying a Longboat Key or Sarasota home for sale and the many ways to finance it.
Michael Saunders & Co.
330 John Ringling Blvd
Sarasota, FL 34236