When new home Buyers receive a breakdown on their future mortgage payment from their lending officer, many are uncertain of the amount every month that is designated to pay their mortgage insurance premium. Not to be confused with homeowner’s insurance, which is bought to protect any potential damage to the home, the mortgage insurance premium (MIP) applies to FHA Loan when the down payment is less than 20%. It is designed to protect the lender against loss as result of default on the home. MIP is tax deductible but is money that the buyer pays and will never see again. These payments are typically cancelled when the Loan to Value ratio has reached 78%. This monthly payment can impact how much a buyer can afford and is a significant part of a buyer’s monthly payment.
The Federal Housing Administration lowered its MIP rates from 1.35% (of the home loan) to .85% in 2015. This will lessen payments for new homeowners and is designed to try and jumpstart the market for entry-level housing. This will translate into around $1000 in year for the average FHA borrower, a savings you can take to the bank!
It’s good to shop around when looking for a mortgage and get quotes from several sources. If you have yet to begin this process, ask when you visit new home communities, and the onsite agent should be able to assist you with determining a ballpark for how much home you can afford. Prequalifying for a loan is an important beginning step in the home-buying process. Search Available Homes
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