January 2, 2012
A reader question about FHA mortgage insurance premiums came in over the weekend, asking about how the FHA calculates MIP.
The reader asks, “Is there some way to calculate how much the FHA insurance will cost based on the price of the home?”
The technical answer to this question is that there’s no way to base the FHA Mortgage Insurance Premium on the price of the home alone–the loan amount (more specifically, the loan-to-value percentage) is used to determine the MIP, and the loan amount could include other items such as permissible closing costs, etc.
That aside, when it comes to how to calculate the MIP, there’s more than one answer because of the nature of FHA mortgage insurance premiums. The FHA loan Up Front Mortgage Insurance Premium, or UPMIP, has its own set of calculations, as do the annual premiums.
The Up Front Mortgage Insurance Premium calculation was modified by the FHA in 2010. According to FHA Mortgagee Letter 10-28, “Effective for FHA loans for which the case number is assigned on or after October 4, 2010, for FHA traditional purchase and refinance products, the upfront premium, shown in basis points…will be charged for all amortization terms”
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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