Effective January 1, 2009 there are a few changes to the FHA loan program that are important to be aware of. According to HUD’s mortgagee letters 2008-40 and 2009-09, the following changes are happening:

New FHA Loan Limits

The FHA loan limit has decreased in Arizona,  here is a list of all FHA loan limits by county in the US. All purchases and refinances (including the FHA streamline refinance) must be under the new maximum loan limits.

FHA Down Payment Requirement

The new FHA minimum down payment requirement has changed from 3% to 3.5%.

Up Front Mortgage Insurance Premium (UFMIP) Requirements

The UFMIP requirements for regular refinances and purchases are 1.75%; FHA Streamline refinances are 1.50%

2 Appraisals Required on All FHA Cash-out Refinances Exceeding 85% Loan-to-Value

For people who are refinancing and taking cash out of their home, all FHA cash out loans exceeding 85% LTV require 2 appraisals. You can still go up to a 95% loan-to-value with FHA — for now.

Related Posts

• Acceptable Sources of Funds For Closing Costs / Down Payment
• How Do FHA Loans Work? MIP and UFMIP Explained
• FHA Conference Call Regarding HR3221

Lately, I have talked to quite a few people who open the conversation with something to the effect of “How Do FHA Loans Work?” I thought I would take some time to explain how FHA loans “work” in a series of posts and highlight some of the differences between FHA loans and other types of loans.

This will be an ongoing “How Do FHA Loans Work” series with random updates.

Today’s installment of “How Do FHA Loans Work?” comes from a conversation I had yesterday who asked me “How does MIP work?”

What is MIP? What is UFMIP? What is MI?

When you take out an FHA loan, you are required to pay what is called an Up Front Mortgage Insurance Premium (UFMIP).  Currently, the UFMIP requirement is between 1.5% (FHA Streamlines)  and 3% (FHA Secure) of the loan amount (this amount changes from time to time).  This money is taken and put into an escrow account at the US Treasury and is proportionately distributed to HUD on a monthly basis in case you default on your loan.  This UFMIP does not benefit you as a borrower — it benefits the lender in that it protects the lender against mortgage loss because FHA pays the lender directly if the property is foreclosed and a claim is filed.

In addition to the UFMIP that you will be required to pay when you take out an FHA loan, you will also be required to pay Monthly Mortgage Insurance – commonly referred to as “MI”. Currently this MI is .0055% of your total loan amount broken out on a monthly basis.  So for a loan amount of $100,000, the monthly MI would be $100,000 x .0055 /12 or about $46 per month..

MIP is the common reference to the UFMIP account once it is set up – and if you have had an FHA loan in the past, you may actually be entitled to an MIP refund.  HUD has done a very nice job of making it easy to find out if you are due an MIP refund by making a search section on their website.

MIP Refund vs MIP Credit

When you participate in the FHA Streamline program, you will be required to set up a new UFMIP account (as always) with your new FHA loan.  The nice thing about going from one FHA loan into another FHA loan is that HUD will actually give you a credit for whatever is left in your old MIP account towards setting up your new UFMIP account.  So, in other words – if you have $1,500 in your old MIP account and your new UFMIP that is required on your new loan is $$2,000 – HUD will credit you $1,500 toward the $2,000 so you will only be required to pay an additional $500.

An MIP refund is different than an MIP credit – an MIP refund actually comes in the form of a check after you fill out the required paperwork if you are due an MIP refund. Again, it is easy to find out if you are due an MIP refund thanks to the search section on HUD’s website.

Related Posts

• FHA Loan Program Changes for 2009
• Are You Due an MIP Refund from HUD? Free and Easy to Find Out!