FHA Mortgage Insurance Explained
There is a bit more to understanding FHA rates in California than there are non-FHA home loan rates.
Why? Because FHA loans include Mortgage Insurance (more on that below) and because of that you’ll see a low FHA loan rate but a really high APR attached to it. Don’t worry it’s completely normal.
Also, FHA rates in California are not impacted the same way Conventional or Jumbo rates are with respect to your credit score.
If you have a 680 credit score or a 780 credit score your FHA interest rate is going to be the same (refinance and purchase transactions).
FHA Mortgage Insurance Explained
“Mortgage Insurance”(MI) Simply put; it’s an insurance policy you pay each month that covers a lender’s losses in the event you default on your FHA loan.
How They Figure Out The Cost Of MI:
There is a formula they use to figure out your monthly FHA MI cost:
LTV >15 years LTV <= 15 years
>95% 0.85% >90% 0.70%
<=95% 0.80% <=90% 0.45%
This is the standard formula in California as well as other states. So, for a $200,000 loan amount, 30 year fixed term and a LTV of 95% or less, your monthly MI cost is $133.34 per month (200,000 x 0.80% = 1,600/12 (for 12 months) = $133.34 per month).
And What Is UFMIP
UFMIP stands for Up Front Mortgage Insurance Premium. This is the amount you pay on the origination of the new FHA home loan to FHA. It’s part of the Mortgage Insurance program mentioned above. The UFMIP is usually rolled into the loan or sometimes the interest rate is increased to cover the up front cost of UFMIP – very rarely would someone pay out of pocket to cover the cost of the UFMIP.
This is for all FHA loans in California as well as every other state.
Getting Rid of FHA Mortgage Insurance
If you obtained your FHA loan on or after June 3, 2013, here are your possible options for removing MI. If your original LTV was higher than 90% then you will have to pay the MI amount for the entire life of the loan.
To get rid of it you’ll have to either refinance the loan or sell the property to pay off the loan.
If your LTV was 90% or less you’ll have to pay mortgage insurance the entire term or 11 years (whichever is less).
Generally speaking, most people have to refinance to get rid of FHA Mortgage Insurance even those that originally had at least 10% equity.
The reason is you probably don’t want to stay in an FHA loan for 11 years, other opportunities should open up for better terms in less than 11 years.
