Here is the skinny on FHA.
FHA loans are owned by the “Federal Housing Authority”
One of the ways the the federal government controls our monetary system is by allowing money to flow in the system.
Sooo. If they buy mortgages from the banks or “lenders” then the lenders have thier money back to lend again. The bank takes thier fees (which is alot) and moves on to the next loan.
If you are the bank then…
1 You are probally very rich.
2 You are looking to sell the loan as soon as you fund it, so you build it with that in mind.
The government put out a whole class of loans call FHA… Meaning they will buy the loan as soon as it funds…. but,
1 The government is tricky!!!
2 The Government is TRICKY!!!
3 The GOVERNMENT IS TRICKY!!!
So in true government style, The government makes the loan sound great but there are trick moves… UFMIP and MI.
Let me say that again UFMIP and MI.
What is that you ask?
Its the GOTCHA!!!
UFMIP = Up Front Mortgage Insurance Premium
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 standard 1.75 or 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 a set % of your total loan amount broken out on a monthly basis.
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.
Credit to my friends at the arizona mortgage team for helpin me on this one.
Did I warn you that I have a sense of Humor also…
Ohh Yea… That too…