How Will FHA Mortgage Insurance Affect My Mortgage Payment?

FHA mortgages is will always include mortgage insurance, not just until you owe >80% of your home’s value. Mortgage insurance will be paid for the life of the loan. While this does not sound ideal, the good news is that the insurance will be decreasing as time goes on. Below you will learn exactly how FHA mortgage insurance will affect your payments and how much you will be paying.

Upfront Mortgage Insurance

Upfront mortgage insurance will not affect your payment and is equal to 1.75% of your total mortgage amount and in most cases is a one-time fee.

Many borrowers are simply able to wrap this cost into their loan in the event that they bid less money towards the home than what it’s actually worth. In this scenario, the loan amount will increase.

Annual Mortgage Insurance

Annual mortgage insurance will affect your payment. As you pay this each year, the total amount will decrease accordingly with the principal loan balance.

Annual mortgage insurance is set in place to protect the lender in the event that you default on the loan. With this insurance, you are additionally able to borrow as much as 97.5% of the home’s value with a credit score of 580 and a maximum of 41% in the total debt ratio.

The Cost of FHA Mortgage Insurance

FHA loans require an upfront premium, or fee, that is 1.75% of your total loan amount. Here are some options to consider when paying this additional fee:

• You can include the premium in your FHA closing costs, assuming that you have the cash.
• You can roll it into the cost of your loan, increasing the monthly payment. Not only will you be paying this fee upfront, you will also pay a monthly premium that will be added to your mortgage payments. This can vary from .45% to 1.05% of the amount of your loan per year. This percentage will be determined a few things including; the amount of the loan, the FHA down payment, and how many years your loan is financed for.