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FHA MI question

Hello, my question is regarding MI on an fha loan. I know that on a 30 yr fixed fha loan, MI will drop when the LTV hits 78% and that the MI has been paid for 5 years. If I got a FHA loan 3 years ago and want to do a streamline FHA refinance, does that 5 year period of having to pay MI start again, or will it be just 2 years left if my value hits 78% ltv? by jackni_682_284 from Westmont, Illinois. Nov 19th 2012 Reply


Barb Lanis (BarbLanis)
#70 ranked lender in Illinois - 663 contributions

The date your loan was endorsed by FHA is the key in determining your options. However, I have had some clients choose to refinance in spite of the higher MIP, because the savings was still significant. Since there could be upcoming changes to FHA, it may be best to explore your options now rather than later. I would be happy to prepare a side-by-side comparison of your options whether FHA Streamline vs. Conventional. Please feel free to contact me, I am in Schaumburg, IL barb.lanis@1amllc.com

Nov 19th 2012
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William J Acres (William_Acres)
#73 ranked lender in Arizona - 8,726 contributions

Your clock will start again at a minimum of 5 years, and the LTV must be below 78% of the lesser of original appraised value or loan amount. If your loan was initiated prior to May 2009, then there is reduced MI and UFMIP premiums available.. Also, if you go 15 years vs. another 30 year mortgage, then the MI is also reduced... you might want to consider going conventional.. if you have equity of 10% or greater, it might be more beneficial to go a onetime up front MI premium, and no monthly at all.. Or if you have VA benefits available to you, you can refinance and not have any monthly MI.. There's a lot of options, but without knowing your exact scenario, it's hard to properly advise.. I'm a Broker here in Scottsdale AZ and I only lend in Arizona. If you or someone you know is looking for financing options, feel free to contact me or pass along my information. 480-287-5714 WilliamAcres.com

Nov 19th 2012
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Bert Carpenter (BertCarpenter)
#37 ranked lender in Arizona - 1,823 contributions

The five year clock is not grandfathered. When you refinance, you are obtaining a new loan. The five year minimum starts with the new loan, without regard to how long you have been paying on the existing loan. You also need to remember that the 78% is based on the original appraisal, and does not account for any appreciation. For most FHA loans that start out with the minimum down payment, you are looking at between around 8 years to pay down the balance to 78% assuming you are making the regular payment. To figure this out, take 78% of your original appraised value (if the appraised value is greater than the purchase price, FHA uses the purchase price), find out how many more months you need to pay before you get to 78%. You'll probably be pretty close to the 5 year mark. Then it will make sense to take the lower rate and refinance. ~ Bert Carpenter, The LoansA2z team of NOVA Home Loans ~ NMLS 40586 ~ Licensed in California and Arizona ~ www.LoansA2z.com 888-889-9950

Nov 19th 2012
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Phil Dumouchel (PhilDu)
#32 ranked lender in South Carolina - 2,243 contributions

Somewhat complicated question, partly subject to whether your current mortgage was before or after June 1, 2009. Also, note that FHA is considering making a change so that their mortgage insurance might not be cancelled on future loans after a certain date (which has not been set yet). Generally the 5 year period will start over with the new mortgage. Also, note that the 78% figure is based on the original property value, not a new appraisal - unless you opt for one as part of your streamline refinance.

Nov 19th 2012
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Richard Glover (rglover)
#36 ranked lender in Illinois - 69 contributions

Jackie,You will have to start over with a new 5 year period. There are new reports out of an upcoming announcement from HUD that the MIP in the future will be required to be paid over the live of the loan. If your appraisal will be in line with what is needed, then I think a conventional loan without monthly MI may be something to look at. Please call me at 800 365 3539 and I can put together a few data points for your consideration.

Nov 19th 2012
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Michelle Curtis Loan Originator NMLS 401173 (EmbassyFundingLLC)
#77 ranked lender in Florida - 2,240 contributions

You will start the 5 years over. All the best!

Nov 19th 2012
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It was right around that date actually when I closed, what would be the difference if I closed before or after? I was thinking streamline refinance because of the possibility of not needing an appraisal in case my value dropped. If it didn't drop and it was below 78% or 80% I was thinking the fha route might be better because I got quoted 3.25% as opposed to 3.5% conventional? Im not sure if the quarter percent drop would make up for the MI I would pay if I keep this place for the long haul (30 years) and my loan is at 250K. Also, what determines if an appraisal is needed on a streamline fha refinance anyway? Thanks

Nov 19th 2012
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James Barath (JamesBarath)
#9 ranked lender in Indiana - 352 contributions

If you do a streamline without an appraisal, you are bound to the original appraised value for calculation of LTV and term of mortgage insurance. Based on the fact that your existing FHA home loan is only 3 years old on a 30 year fixed, unless your original LTV was 85% then you would still have to pay in excess of 5 years MI.

Nov 19th 2012
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James Barath (JamesBarath)
#9 ranked lender in Indiana - 352 contributions

The primary reason for getting an appraisal for an FHA refinance would be to roll in your closing costs; otherwise, you would have to bring funds to close for your closing costs and prepaids.

Nov 19th 2012
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Richard Glover (rglover)
#36 ranked lender in Illinois - 69 contributions

Jack,Before that date, Mtg Insurance was .55 monthly and a new program was recenlty put in place that allowed people to stay with the same .55 MI vs moving up to today's rate of 1.25 (soon to be 1.35 per my sources and for the life of the loan per my sources). 3.25% FHA will give you an APR over 4.5+ because of the MI commitment. Advantage is that you can do a Streamline with no appraisal and minimal documentation. I'm local and can run a property report to show you what values are in your area to ease in making the decision. Most likely, if you have some equity going the conventional route may be in your best interest. Other thing to note is FHA loan is assumable and that aspect may come into play again as it did in the 80s

Nov 19th 2012
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Phil Dumouchel (PhilDu)
#32 ranked lender in South Carolina - 2,243 contributions

Depending on your credit score a conventional loan might make more sense but an appraisal will be needed and the new loan cannot be more than 97% of the new loan amount. Generally FHA makes more sense if you are confident of the appraised value and/or if your credit is less 720. Even on a conventional loan there is no guarantee that after 5 years you will be able to drop the PMI charge - the servicer still has some flexibility as to whether they allow it to be cancelled based on a new appraisal. Also, don't forget that the FHA loan is assumable so that 3.25% rate may be highly beneficial if you ever decide to sell.

Nov 19th 2012
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Phil Dumouchel (PhilDu)
#32 ranked lender in South Carolina - 2,243 contributions

Also, the difference is the amount of additional "PMI" that is added to the loan - it is very minimal if the loan was prior to 6-1-09 and you effectively get to keep the current monthly cost. These area all good considerations but if you are working with the right mortgage officer they will help you figure out the options. Ultimately you should probably focus on whether there is a benefit to you based on the new monthly payment. If I were handling your loan I would approach it the way I did for some friends who were previous customers and order the appraisal. If it comes in high enough the loan would be done conventional, if too low stick with FHA.

Nov 19th 2012
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I appreciate the feedback everyone, thank you so much

Nov 19th 2012
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Todd Tholl (toddtholl@leader1.com)
#4 ranked lender in Iowa - 239 contributions

You'll have to start over. If your close to 80% LTV, you may want to consider a Conventional refi.

Nov 19th 2012
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