FHA UFMIP

Effective April 1, 2012

FHA Monthly Mortgage Insurance Premium (MIP)

Increases By 0.10 to 1.25 Point

UFMIP Increases to 1.75 Point

FHA Mortgagee Letter 12-037

FHA Increased Mortgage Insurance on April 1, 2012

The FHA Annual premium, paid monthly increased by 0.10 to 1.25% below $625,000 and 0.75 above to 1.90%.

The UFMIP will be increased from 1.00 percent to 1.75 percent of the base loan amount. This increase applies regardless of the amortization term or LTV ratio. FHA will continue to permit financing of this charge into the mortgage. This change is effective for case numbers assigned on or after April 1, 2012.

FHA charges Two Mortgage Insurance fees on each loan;

Up Front Mortgage Insurance Premium (UFMIP)

Annual mortgage Insurance (MIP) paid monthly.

FHA Upfront Mortgage Insurance Premiums (UFMIP)

UFMIP Fee is paid once and is typically financed by adding it to the loan amount although it may also be paid in cash by the buyer or seller.

Below are the current premiums:

Purchase Money and Qualifying Refinances = 1.00 Percent of loan amount.

Streamline Refinances (all types) = 1.00 Percent of loan amount.

Monthly Mortgage Insurance Premium (MIP)

An annual premium, shown below, paid monthly, will also be charged based on the initial Loan to Value and length of the mortgage according to the following schedule:

30 Year Loans MIP Fee

Less than 95% Loan To Value 0.85%

LTV >=95% Loan to Value 0.90%

15 Year Loans MIP Fee

Less than 95% Loan to Value None

LTV >=95% 0.25%

FHA UFMIP Fee may be canceled

The home must be owned for at least five years.

And, the loan amount must be 78% or less of the original purchase price.

FHA Upfront Mortgage Insurance (UFMIP) Fee is refundable.

A portion of UFMIP may be refunable under the following conditions:

Refinanced within three years.

The new loan must be a FHA refinance.

Year 1 2 3 4 5 6 7 8 9 10 11 12

180 78 76 74 72 70 68 66 64 62 60 58

256 54 52 50 48 46 44 42 40 38 36 34

332 30 28 26 24 22 20 18 16 14 12 10

Is UFMIP Tax Deductable?

Good news! The President has extended the Mortgage Insurance Tax Deduction through 12/31/11!

Under code section 163(h)(3)(E), FHA mortgage insurance premiums are deductible. The premiums must be paid in conjunction with the purchase of your principle residence. It also must be paid on a FHA mortgage issued after December 31, 2006. The deduction applies for 2007 through 2010.

If your adjusted gross income exceeds $100,000 the deductible premium is reduced by 10% of each $1,000 of adjusted gross income above the $100,000 to $109,000. Mortgage Insurance is not tax deductible for borrowers with income in excess of $109,000.

If you financed FHA Up Front Mortgage Insurance Premium (UFMIP), you must determine the portion of the premium that pays for insurance for the tax year by dividing the total premium by the stated term (number of months) of your mortgage, or 84 months, whichever is less.

Multiply that amount by the number of months during the tax year that you had the FHA mortgage. Enter the amount allocated to the tax year in the worksheet for Schedule A, Line 13, to figure your deduction for the tax year.

If your mortgage is satisfied before the end of your tax year, you cannot deduct the amounts that are allocated to periods after the mortgage is satisfied.

If you paid cash for an up front premium for insurance provided by FHA, VA or Rural Housing, commonly known as a UFMIP, Funding Fee and guaranty fee respectively, no allocation is necessary, and you figure your deduction for the tax year based on the full amount of the payment. Enter the full amount in the worksheet for Schedule A, Line 13, to figure your deduction.

This information was compiled from competent sources but I am not a qualified tax expert so Please verify this tax information with a licensed tax professional.

Below Are Previous UFMIP guidelines

Effective for FHA loans with Case Numbers ordered on or after April 5, 2010, FHA UFMIP increased.

Previous Upfront Mortgage Insurance Premiums

FHA will charge revised UFMIP in an amount equal to the following percentages of the mortgage:

Purchase Money Mortgages = 2.25%

Full-Credit Qualifying Refinances = 2.25%

Streamline Refinances (all types) = 2.25%

HOPE for Homeowners (Delinquent Mortgagors) = 2.00%

FHA Reverse Mortgages (HECM) = 2.00%

ONCE UPON A TIME, RISK BASED MIP

was also considered

Risk Based MIP briefly went into effect in 2008 then Housing Bill HR 3221 placed a moratorium on it until September 30, 2009. But by Sept 30 FHA had not issued any bulletins and FHA lenders have not been notified that Risked Based MIP had been reinstated.

last year in an MS-NBCinterview, Dave Stevens the new FHA Commissioner stated that while Risked Based UFMIP was being considered he did not feel it is needed. So, it looks like FHA UFMIP will remain fixed.

FHA Mortgage Insurance Premiums (MIP)

FHA (Federal Housing Administration) charges Mortgage Insurance Premiums (MIP) to protect the lender in the event of default. They are collected by the lender and then forwarded to FHA.

There are two types of MIP. charged on FHA loans. Up Front Mortgage Insurance Premium (UFMIP) and Monthly Mortgage Insurance Premium MIP.

UFMIP is currently a fixed amount and was expected to become a variable amount based on the borrowers credit and loan to value in late 2009. Actually, Risk Based UFMIP was initiated in July 2008 then placed on a one year moratorium until September 30, 2009. September 30 came and went and FHA is still on fixed MIP and apparently is not going to reactivate Risked Based UFMIP.

Currently, UFMIP is a one-time charge, at closing, of 1.75% of the loan amount and is normally added to the base loan amount and financed by the borrower. The base loan is 96.50% of the purchase price so the resulting total loan to value (loan plus UFMIP) could be 98.20% of the purchase price.

Monthly MIP is paid monthly by the borrower to the lender. The MIP payment is currently computed at 0.90% of the loan amount divided by 12. MIP can be removed when the loan has seasoned for five years and the loan to value is 78% or less, based on the original appraisal.

The Maximum FHA purchase Loan To Value (LTV) is 96.50% of the purchase price.

The Maximum FHA Refinance Loan to Value is 97.75 of the property value.

FHA Maximum Loan Amounts can vary in each county; currently the FHA maximum for San Diego County homes is $697,500 which covers the majority of San Diego homes. In Los Angeles and Orange counties, the maximum FHA loan is $729,750.

FHA Credit Scores

FHA Does not have a Credit Score policy but lenders impose their own guidelines. At the time this is written (August 2009) many lenders have recently increased their minimum FICO score to 640. There are still a few that allow home buyers to have a 620 credit score and I have only one San Diego investor who will accept credit scores down to 580 on a case-by-case basis.

Risk Based Up Front MIP (UFMIP) Chart

Risk Based UFMIP is not expected to go into effect

Decision Credit Scores

850-680 679-640 639-600 599-560 559-500 499-300 None

<=90

90.01-95.00

>95

1.25

1.50

1.25

1.50

1.75

1.50

1.75

2.00

1.75

2.00

2.25

1.75

---

1.50

1.75

2.00

Notes

1. Annual premium rates are: 50 basis points for loans with 5 and 10 percent downpayments; 55 basis points for loans with 3 percent downpayments; and 25 basis points for all loans with amortization terms of 15 years or less.

2. Downpayment percentage is determined by the base loan-to-value ratio (LTV). The “base LTV” is calculated by: (1) dividing the base mortgage amount by the lesser of the sales price or appraised value of the property (for refinances, the base mortgage is divided by the appraised value of the property); (2) subtracting the result from 1 (one); and (3) multiplying by 100. “Base mortgage amount” is defined as the mortgage amount prior to adding any financed closing costs or upfront mortgage insurance (UFMIP).

3. Eligibility for the mortgage insurance premiums listed in the chart above is based on an applicant’s decision credit score (FICO). A “decision credit score” is determined for each applicant according to the following guidelines: when three scores are available (one from each repository), the median (middle) value is used; when only two are available, the lesser of the two is chosen; when only one is available, then that score is used. If more than one individual is applying for the same mortgage, the lender should determine the decision credit score for each individual borrower and then average them to determine the final decision credit score for the application. That application “decision” credit score is then used to underwrite and determine if the mortgage is considered an acceptable risk.

4. Except as provided below, eligibility for these insurance premiums is dependent upon borrower acceptance by TOTAL (Technology Open to Approved Lenders). Therefore, all borrowers with valid credit scores must be scored by TOTAL.

5. Borrowers not scored by TOTAL or with insufficient trade lines to generate credit bureau scores are considered as “none” in the premium chart and are priced accordingly. Borrowers falling into cells with no premium price shown are not eligible for FHA-insured financing.

6. If TOTAL refers a loan for manual underwriting and the underwriter deems that there are sufficient

compensating factors to create an acceptable risk to FHA, then the upfront insurance premium (UFMIP) charge will be as shown on the premium chart.

LTV