Post # 1
After careful consideration, my husband and I are taking advantage of the FHA program for buying our home. We have the down payment and closing cost requirements paid for. The only thing I am confused on is the “PMI” or monthly insurance premium. I have read heavily on what PMI is and what it does, but I am still confused, as some of my friends who are home-owners aren’t sure that they pay PMI.
So I am basically asking if any bee is famliar, bonus points if you can advise on your experience with using the FHA program, if you did. Also, we aren’t eligible for a conventional loan, for reasons that are beyond discussing at this point!
Post # 2
silverimpala17 : FHA doesn’t have PMI as that is private mortgage insurance and FHA loans are government not privately insured. You will have to pay an upfront cost based on your LTV and MIP monthly (monthly insurance premium.) PMI ends at a certain LTV (loan to value) but you will have to pay MIP for the duration of your loan.
Post # 3
Loan underwriter here. With FHA you pay two mortgage insurance premiums–one upfront which is 1.75% of your base loan amount and another which is a certain percentage based on your loan to value and loan term. So if you are asking for $100K on a 30 year mortgage with 3.5% down, you will pay $1750 upfront (tacked onto your loan amount) and $850 a year (.85%) or roughly $71/mo. The upfront premium is the cost FHA charges to do the loan and the monthly is to reduce risk and cover HUD in case of default. With any post 2013 FHA loan at maximum terms, the monthly premium is for the life of the loan. You will need to refinance out of the loan into a different product to get rid of it. If you refinance conventional, the cutoff point for no premium is 80% loan to value. So if your house is worth $100k, you would have to borrow $79K or less to get rid of the premium. Most people accomplish this by putting more money down at closing or making payments long enough or refinancing at the right time when values are much higher. Your friends likely don’t know if they pay it because it’s just part of the monthly mortgage payment. They would have had to look at their disclosures and closing statement to see it.
Post # 4
Good answer by PP. Just wanted to add that some loans don’t have PMI, including VA loans, so if your friends have one of those, they may not pay PMI.
Post # 5
silverimpala17 : We did an FHA loan. In the simplest terms I can think of it’s basically insurance in case you default on the loan. We’ve owned our home for 4 years and last year we refinanced to a conventional loan which removed the mortgage insurance. We had to wait until we had 20% equity in the home before we could refinance. Our home cost us 135,000 and we put 5,000 down. We got lucky that we bought in a buyers market and the value went up rather quickly but refinancing was fairly easy after we hit that 20%.
Also, even though we had a fixed rate with our FHA our property taxes went up and our mortgage didn’t cover it so we had the choice of paying the difference up front or adding it monthly to our mortgage. Just a heads up since you were asking for experience
Post # 6
silverimpala17 : We have an FHA loan and pay PMI. We pay it because we didn’t have enough of a down payment, so it’s an insurance to the mortgage company in case we default. I don’t like paying this “extra”, but it was explained to me that after the depression it was a way to allow people to get into homes that couldn’t normally afford it. Like me! Unfortunately nowadays it seems PMI is forever where before when I had a house it would go away once the value of your house went up.
Post # 7
ButternutPoppy : thank you for your reply and kind words. We have exactly the 3.5% required and the closing costs. Can you recall how long it took for the paperwork to go thru and you being able to move in? Also, did FHA have their own home inspector or didn’t you have to do that?
Post # 8
silverimpala17 : The paperwork was just the normal time, we actually wanted a quick close and it was fine. I do think there may have been a quick FHA inspector that came out because I remember being worried about a couple things (a small crack in a very old window, and a cement step that wasn’t quite even). But yes, we hired our own inspector. He was awesome, everything he told us would be a potential problem – has been. LOL!
PS- I do remember that an FHA inspector must have come out because there were a couple little things the seller had to do. Add a lock to the 2nd story window (LOL) and a couple other small things.
Post # 9
silverimpala17 : We were under contract for 30 days. It was on day 30 Exactly that we closed! If you go over the 30 days, they will file an extension, it is a simple paper with a few signatures.
I hired my own inspector to do my inspection. We bought around Christmas time last year and got our inspection at a “Holiday” price. (Not alot of homes are purchased around christmas) We were not required to use a special one. BUT… your insurance company will send their own inspector, make sure there are no trees touching, etc when they come or that can really slow stuff down.
ETA: I now do remember our mortgage company sending out an appraiser of their own. I remember because we got an appraisal for the exact amount we were paying and I was pissed because I knew we got a good deal for our home. Turns out this is quite normal in our area due to the appraisal being used for tax purposes too. You don’t want it appraised higher because thats higher taxes…