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Mortgage Life Insurance Requirements

FHA Requirements

Mortgage Insurance (MIP) for FHA Insured Loan

Mortgage insurance is a policy that protects lenders against losses that result from defaults on home mortgages. FHA requires both upfront and annual mortgage insurance for all borrowers, regardless of the amount of down payment.

2018 MIP Rates for FHA Loans Over 15 Years

If you take out a typical 30-year mortgage or anything greater than 15 years, your annual mortgage insurance premium will be as follows:

2018 MIP Rates for FHA Loans Up to 15 Years

Homebuyers who can afford to pay off their loans quicker and opt for a shorter term, such as a 15-year mortgage, will benefit from lower mortgage insurance premiums, as follows:

How Long Will You Pay the MIP?

For loans with FHA case numbers assigned on or after June 3, 2013, FHA will collect the annual MIP, which is the time at which you will pay for FHA Mortgage Insurance Premiums on your FHA loan. They are as follows:

Current Up-Front Mortgage Insurance Premium

The UPMIP is currently at 1.75% of the base loan amount. This applies regardless of the amortization term or LTV ratio.

Current Up-Front MIP on Certain Streamline FHA Refinances

SF forward streamline refinance transactions that are refinancing FHA loans endorsed on or before May 31, 2009, the UFMIP is currently 0.01 percent of the base loan amount.

Current Annual MIP on Certain Streamline FHA Refinances

SF forward streamline refinance transactions that are refinancing FHA loans endorsed on or before May 31, 2009, the Annual MIP will be 55 bps, regardless of the base loan amount and takes effect on or after June 11th, 2012.

*Revision to the Annual MIP Premium – as per Mortgagee Letter 2015-01

There will be no change in Annual Mortgage Insurance Premiums for all case numbers assigned on or after January 26th, 2015 for the following:

  1. On loans with a Loan to Value of less than or equal to 78% and with terms up to 15 years. The annual MIP for these loans will remain at 45 basis points.
  2. On terms ≤ 15 years and loan amounts ≤ $625,500 – If the loan to value is ≤ 90%, the Annual Premium remains the same at 45 basis points (bps). If the loan to value is >90%, the Annual Premium remains the same at 70 basis points (bps).
  3. On terms ≤ 15 years and loan amounts >$625,500 – If the loan to value is 78.01% – 90.00%, the Annual Premium remains the same at 70 basis points (bps). If the loan to value is >90%, the Annual Premium remains the same at 95 basis points (bps).

There will be the following reduction in premiums in Annual Mortgage Insurance Premiums for all case numbers assigned on or after January 26th, 2015 for the following:

  1. On terms > 15 years and loan amounts ≤ $625,500 – If the loan to value is ≤ 95%, the new Annual Premium is reduced from 130 basis points (bps) to 80 basis points (bps). If the loan to value is >95%, the new Annual Premium is reduced from 135 basis points (bps) to 85 basis points (bps).
  2. On terms > 15 years and loan amounts >$625,500 – If the loan to value is ≤ 95%, the new Annual Premium is reduced from 150 basis points (bps) to 100 basis points (bps). If the loan to value is >95%, the new Annual Premium is reduced from 155 basis points (bps) to 105 basis points (bps).

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FHA Loan Articles and Mortgage News

August 29, 2018 – Are you interested in buying a home with an FHA loan but have questions about the down payment requirement? There are some common questions with important answers you should know before you choose the right home for you.

August 25, 2018 – If you are thinking of buying a home and want to apply for an FHA mortgage to do so, it’s a very good idea to review your credit report to make sure there is no information about late or missed mortgage payments, rent payments, and even credit card or utility bill payments.

August 23, 2018 – When you apply for an FHA mortgage your lender will pull your credit report to determine what kind of credit patterns you have. Lenders want to see responsible use of credit and know that the borrower is an acceptable credit risk. And it’s not just about what your FICO scores say.

August 22, 2018 – You can spot a credit repair scam by asking a few simple questions and looking out for the tell-tale signs of the scam artist. Those signs include pressure for up front payment and the general inability to answer specific questions about the services being offered.

August 19, 2018 – FHA cash-out refinance money is good for any purpose the borrower wants to use it for; the cash-out refi loan is different in that respect than a refinance loan to rehab a house (FHA 203(k) loans, for example) or to purchase and rehab a home.

FHA.com Reviews

FHA.com is a one-stop resource for homebuyers who want to make the best decisions when it comes to their mortgage. With our detailed, mobile-friendly site, individuals can access information about different FHA products, the latest loan limits, and numerous other resources to make their homebuying experience easier. Take a look at some of the reviews from other FHA.com visitors!

Common FHA Questions

Purchase or refinance your home with an FHA loan. You can get one with a down payment as low as 3.5%. Browse through our frequent homebuyer questions to learn the ins and outs of this government backed loan program.

Mortgage Insurance Requirements

Mortgage insurance companies’ guidelines may be stricter than the lender’s guidelines.

Related Articles

  • 1 Pros & Cons of Mortgage Life Insurance
  • 2 Requirements for a No Money Down Mortgage
  • 3 Mortgage Insurance FAQ
  • 4 What Are the Rules for Mortgage Insurance?

Private mortgage insurance (PMI) allows homeowners to buy a home without needing a down payment of 20 percent or more of the purchase price. Mortgage insurance protects lenders against losses should the borrower default and the home is foreclosed. Mortgage insurance companies have their own guidelines for approval that may be stricter than the lender’s requirements. If your loan requires PMI, it may have to be approved by both the lender and the mortgage insurance company before you can close.

Private mortgage insurance providers review the credit history of all borrowers. They want to see a history of all the borrowers’ meeting their obligations. If one borrower has outstanding credit and the other borrower has a poor credit history, the mortgage insurance company may decline to offer coverage. Many mortgage insurance companies require credit scores of 680 or greater, depending on the specifics of the loan. Recent significant derogatory credit, such as bankruptcy or foreclosure, could also be reason for the mortgage insurance company to decline the coverage.

Employment and Income

Ideal borrowers have at least two years working in the same job for the same industry. Newly self-employed borrowers may not be able to obtain mortgage insurance. Many companies want to see at least the last two years’ worth of federal income tax returns and a current profit and loss statement. Your combined minimum payments for all debt on the credit report and the full mortgage payment, including taxes and insurance, will be compared with your monthly income. Typically, your total monthly debts cannot exceed 45 percent of your gross monthly income.

Down Payment and Reserves

Very few zero down payment loans are available from lenders. Mortgage insurance companies typically will not provide insurance for these loans. A down payment of at least 5 percent or 10 percent is required for most conventional loans. The source of the funds is also important to mortgage insurance companies. They want to see that the funds are yours, not borrowed or given to you as a gift. Some companies may also require you to have two months’ worth of payments remaining after you close on the loan. They prefer you do not use all of your assets on the down payment. Fortunately, these reserves can be retirement accounts such as a 401k or IRA.

Property Type

Mortgage insurance companies will insure only residential property. If the building is a commercial property, it most likely will not be eligible for mortgage insurance. They also look at where the property is located. If the home is in an area experiencing declining values, the mortgage insurance company may have additional requirements or even refuse to provide coverage. This all depends on where the home is located and if it is a primary residence or second home. The appraisal will also have to show the home is worth the sales price.

Is Mortgage Insurance Better Than Life Insurance to Pay Off a Mortgage Upon Death?

When you have a family and a home, you may want to ensure that the mortgage is paid off when you die. For this need, you could buy mortgage life insurance or a regular life insurance policy. Whether one of these policies is better for you than the other will depend on your situation.

Mortgage Insurance

Mortgage insurance is a product that is typically sold by mortgage lenders when you buy a house. You can also buy this product from a private insurance company on your own. With this type of insurance, the insurance company will pay your mortgage balance if you die before it is paid off. Instead of paying your family directly, the insurance company pays the lender directly. This eliminates the mortgage balance and gives the house to the family members free and clear.

Life Insurance

Life insurance is a product that provides your family members with a lump sum benefit when you die that is paid directly to the beneficiaries rather than the mortgagee. You could choose one of several types of life insurance for this need. For instance, term life insurance could be purchased for a specific number of years. You could also choose to buy whole life insurance, which provides permanent protection as long as premiums are paid. If you buy a basic term policy, it will generally be less expensive than a mortgage life insurance policy.

Decreasing Benefits

One of the primary reasons that most people prefer life insurance to mortgage life insurance is because of the decreasing benefit involved. With a regular life insurance policy, the death benefit remains level over time. With a mortgage life insurance policy, the death benefit decreases because you are continually paying down the balance on your mortgage. With this kind of policy, the insurance company only pays the amount that you still owe on the mortgage instead of the value of the house.

Freedom of Choice

Because the payment is made directly to the beneficiaries, a regular life insurance policy provides more freedom of choice. The beneficiary might decide it makes more financial sense to make only a small payment, or none at all, toward the mortgage, and, instead, use the money for other things, like a college education or an investment. This can be a good thing, if you trust your beneficiaries to make the best choice. If not, a payment that goes directly to the lender might be a better idea.

No Medical Exam

One scenario in which mortgage life insurance could be helpful is when you cannot qualify for normal life insurance due to health problems. With regular life insurance, you often have to pass a medical exam before you can qualify. Most mortgage life insurance plans do not require you to get a medical exam. In this case, you could still provide a way for your mortgage to be paid off for your family, even if you have a serious medical condition.

Why You Don’t Need Mortgage Protection Life Insurance

Shortly after you close on a mortgage – whether it’s because you just bought a home or refinanced your existing loan – you’ll probably start getting daily solicitations in the mail urging you to purchase mortgage protection life insurance. Don’t confuse this product with the private mortgage insurance or mortgage insurance premium you may need to pay for along with your mortgage if you put down less than 20% on your home. And do understand what you would be buying if you choose to sign up for mortgage protection life insurance.

These solicitations disguise themselves as official requests from your mortgage lender and give details about your mortgage, like your lender’s name, how much you borrowed, your loan type and, of course, your name and address. In stern, bold lettering, they lead with statements like these:

  • “IMPORTANT NOTICE: PLEASE COMPLETE AND RETURN”
  • “FINAL NOTICE: MORTGAGE PROTECTION CARD”
  • “NOTICE OF OFFERING: MORTGAGE FREE HOME PROTECTION”

Then they get into the scare tactics and emotional pleas:

“What if you die suddenly? Would your family be able to continue paying the mortgage and maintain the same quality of life?”

The solution they offer is a program claiming to “protect your family in case of an unexpected tragedy by paying off your mortgage.” It’s called a mortgage protection program or mortgage protection life insurance. “Without this plan,” the solicitations say, “your family would still have to make your monthly mortgage payments.”

But mortgage protection insurance (MPI) is really just a type of life insurance. It’s sold by banks affiliated with lenders and by independent insurance companies that obtain information about your mortgage from public records. Policy terms and conditions vary by state and by insurance company, so the information provided here is meant to be a general overview and may not precisely reflect the terms of any specific policy. That being said, most people don’t need mortgage protection life insurance. Here’s why.

Lack of Flexibility with Some Mortgage Protection Insurance Policies

With regular term life insurance, your survivors or caretakers can use the money they receive as they see fit. Under some traditional mortgage protection insurance policies – particularly those purchased through your lender – the insurer sends the benefit payment directly to your lender so your beneficiaries never see it at all. A better option is a mortgage protection policy that pays your loved ones directly. More and more policies do, so be sure that’s the kind you get if you choose this product.

Higher Premiums than Regular Term Life Insurance

If you’re healthy and have never used tobacco, you’ll usually pay more for mortgage protection insurance than you would for term life insurance.

“The main reason for not buying the MPI is the cost,” said Bakul Modi, an insurance adviser at Protection from Life in the Raleigh-Durham, N.C. area. “It typically offers a declining amount of coverage for a cost that is higher than a term policy. You can get level term protection for a lower cost with term insurance.”

Unlike other types of insurance, it’s difficult to get a quote for mortgage protection insurance online. Prices for mortgage protection insurance can vary widely; there is less transparency in this market and there are too many variables to accurately compare prices, Modi said. But here is one example of the difference in payment: For a 35-year-old male nonsmoker living in New York, a 30-year mortgage life insurance policy from State Farm might cost $755 per year. If he qualified for the best rates on a 30-year term life insurance policy, he might pay $345 per year; if he qualified for the worst rates on the same policy, he might pay $677.50 per year. These prices are subject to underwriting, which may require a medical exam.

What’s more, the premiums on the mortgage protection policy might only be fixed for the first five years, then they could go up or down. You’ll have to consult the policy to see how high the premiums could get. By contrast, the term policy has fixed premiums for 30 years; no surprises or price increases.

Shrinking Payout (If You Buy the Wrong Kind)

Many mortgage protection policies do offer level premiums for the policy’s duration, meaning your premiums will stay the same. This feature sounds great, except that with many policies the coverage these consistent premiums buys you will shrink over time as the potential payout decreases. This type of mortgage protection life insurance is referred to as decreasing term insurance.

Here’s the reasoning: The insurance is designed to pay off your mortgage balance, and each month you pay down part of your mortgage principal. Therefore, the mortgage protection insurance policy’s potential payout shrinks every time you pay your mortgage.

Instead, look for the newer type of mortgage protection product where the payout doesn’t decline; this feature is called a level death benefit. What it means is if you’re covering a $100,000 mortgage, your beneficiary (not the lender) will receive the whole $100,000, even if the mortgage debt has declined to $65,000. If you pay off the mortgage while the policy is still in effect, some policies allow you to convert your mortgage insurance into a life insurance policy.

Returned (but Inflation-Eroded) Premiums

Some mortgage protection insurance policies will return your premiums if you never file a claim. Does this make up for the fact that your coverage declines although you keep paying the same amount? Not really. After 15 or 30 years, when your mortgage is paid off and you get your premiums back, they’ll be worth far less because inflation will have eroded their value. You also will have lost the opportunity to invest what you saved from purchasing cheaper term life insurance instead of mortgage protection insurance. That’s 15 or 30 years of potential compounding returns down the drain.

So Who Might Benefit?

Some people don’t qualify for term life insurance because of their medical history or current poor health, and they aren’t eligible for a group policy that doesn’t require medical underwriting (employer life insurance may not require a medical exam, for example). For these individuals, mortgage protection insurance could be a useful alternative.

“MPI is usually sold without underwriting,” Modi said, “so if you are unable to get term, MPI might make sense.”

If that fits your situation, get quotes from several companies – not necessarily the ones that sent you the alarming letters through the mail. Then, check each firm’s financial strength rating with A.M. Best, a company that gives insurers a letter grade to help consumers evaluate whether the insurer will be able to pay them if they file a claim.

To avoid a declining-payout MPI policy, you might be better off with a no-medical-exam (also called guaranteed issue) term policy with level premiums and a level death benefit. These policies cost more and sometimes have lower coverage than term policies that review your health and medical history, but they’ll pay the same benefit whether you die five or 25 years into your mortgage.

Another possibility: Mortgage protection insurance could offer more coverage at a better price earlier in your mortgage term. Once you’ve paid down the principal significantly, you might be better off switching to a guaranteed issue term policy.

“If you cannot qualify for term insurance, be sure to shop around,” Modi said. Compare the fine print to see what you’re really getting for your money. “While there are scams out there, it is a legitimate, albeit expensive, product,” he said. “Not all policies are equal.”

Here are two more important considerations if you’re considering MPI:

Age Limits

Like many other types of life insurance, mortgage protection insurance may not be available after a certain age. State Farm, for example, only offers 30-year mortgage protection insurance to applicants age 45 or younger; the age limit is 36 in New York. You’ll need to be 60 or younger to get a 15-year policy.

Don’t Confuse It with Private Mortgage Insurance

While the names sound similar, mortgage protection insurance and private mortgage insurance (PMI) are completely different products. PMI protects the lender, not you. If you put down less than 20% on your home, you pay monthly premiums to a PMI policy that will pay your lender if you default. If you die, your heirs will continue to owe the mortgage payments and would have to default on them before PMI kicks in. If anyone depends on your income, be sure you purchase life insurance to help them pay the mortgage and other expenses after your death.

The Hard Sell

Mortgage protection insurance companies might try to convince you that you need their product in addition to life insurance. They’ll tell you that paying off the mortgage will eat up a major portion of your life insurance proceeds, leaving much less for your survivors to meet their basic living expenses. But if you don’t think you have enough life insurance, you should buy more; it will probably cost less to increase that coverage than to purchase a separate mortgage protection policy. The other flaw in this argument’s logic is saying that your survivors would have to pay off the mortgage if you died unexpectedly. That isn’t always the case and isn’t necessarily the best use of insurance proceeds. They may well be able to continue making mortgage payments after you die, using the insurance to help with those payments and other living expenses.

The Bottom Line

Financial experts usually don’t recommend any insurance product that only pays certain bills. If you’re concerned about your spouse or children inheriting a mortgage they might not be able to pay, term life insurance is the best option for those who qualify. Even though some policies are more flexible now, people should thoroughly research term insurance and other options before choosing mortgage protection life insurance.

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