Dear Dr. Don,

I currently co-own a house, but will soon refinance so I can buy out the other party’s interest in the property. We (me and the other party) have a conventional loan but I am getting an FHA loan to refinance. Do I still have to pay private mortgage insurance, or PMI? What’s the maximum I should have to pay for PMI? Do I have to pay it all upfront?

— Bob Bungalow

Dear Bob,

FHA loans don’t require private mortgage insurance; instead, they charge a mortgage insurance premium, or MIP. I know it seems like I’m splitting hairs, but FHA loans provide a government guarantee to the lender, so it’s not private insurance.

The typical FHA loan charges MIP in two ways. You pay part of the MIP at closing. The balance is paid as a monthly fee. The amount of the MIP is determined by the length of the loan and the loan-to-value. The following information on mortgage insurance premiums comes from HUD Mortgagee Letter 2008-22:

Upfront Premiums: FHA will charge an upfront premium in an amount equal to the following percentages of the mortgage:

  • Purchase Money Mortgages and Full-Credit Qualifying Refinances = 1.75 percent.
  • Streamline Refinances (all types) = 1.5 percent.
  • FHASecure (Delinquent Mortgagors) = 3 percent.

Annual Premiums:

An annual premium, shown in basis points below, to be remitted on a monthly basis, will also be charged based on the initial loan-to-value ratio and length of the mortgage (except for FHASecure delinquent mortgages) according to the following schedule:

  • Purchase Money Mortgages, Full-Qualifying Refinances, and Streamline Refinances:
LTV Annual for Loans > 15 Years LTV Annual for Loans < 15 Years
= 95 50 = 90 -None-
> 95 55 > 90 25

Since the upfront MIP charge depends on the date an FHA case number was assigned to the loan, this information is not applicable to all FHA loans. You can find an FHA MIP calculator on the Web by searching on those terms.

Like PMI, MIP doesn’t last forever. The monthly MIP payments are required until the loan-to-value is less than 78 percent.

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