FHA Mortgage Insurance

8 Replies

Hello BP, 

I am getting ever closer to house hacking my first small multi on an FHA loan and have a quick question -

We plan on buying with an FHA 3.5% loan, 30 year. I know this comes with two mortgage insurance premiums. The upfront premium of 1.75% of the loan amount (can be rolled into loan amount), and the annual premium. For my 30-year at 3.5% my annual premium would be 0.85% of the loan.

Lets say I am looking for a property that will cost 200K. My annual premium would be (0.0085) * 200,000 = 1,700/year divided by 12 = $141.67 per month. My question is this - when I am running reports on properties (lets say on the BP calcs), do I have to add $141.67 EXTRA per month, in the calculation or is this already accounted for in the P&I? I figured added extra, but I wanted to check for sure. 

Thanks all! 

Do you mean adding the extra to figure if you qualify?  Or add the extra as part of the expense for figuring your return?

I am a little confised by what you are asking, but I will try my best to answer with what you have given me.

The answer to both is YES. Yes, you have to figure the entire payment (PITI) and any PMI/MI when determining if you qualify for the loan. You would also add in any HOA payments or assessments that would be expected in your monthly payment burden. THis is often times why people lean towards houses instead of condos in markets where the price difference isn't that much, because by the time you add on the HOA payment, that could've gotten you more house for the money.....anyway,

IF you are asking if you use the entire payment amount to calculate income and expenses for the proeprty to see if it is a cash flowing property or not, the answer is also YES. You want to include ANY expense for the property when figuring your return. The PMI/MI is part of the expense to obtaining the loan, so it needs to be included.

I hope that answers your questions.

@Tyler Jordison You're basically describing my exact situation. Bought a duplex with an FHA for $200K. My mortgage insurance is baked into my mortgage payment, which is extra, as you figured.

Once I have the equity built in, I will refinance to a conventional loan, knocking out the PMI, lowering my monthly payment. My principal and interest, however, will remain the same.

Originally posted by @Cara Lonsdale :

Do you mean adding the extra to figure if you qualify?  Or add the extra as part of the expense for figuring your return?

I am a little confised by what you are asking, but I will try my best to answer with what you have given me.

The answer to both is YES. Yes, you have to figure the entire payment (PITI) and any PMI/MI when determining if you qualify for the loan. You would also add in any HOA payments or assessments that would be expected in your monthly payment burden. THis is often times why people lean towards houses instead of condos in markets where the price difference isn't that much, because by the time you add on the HOA payment, that could've gotten you more house for the money.....anyway,

IF you are asking if you use the entire payment amount to calculate income and expenses for the proeprty to see if it is a cash flowing property or not, the answer is also YES. You want to include ANY expense for the property when figuring your return. The PMI/MI is part of the expense to obtaining the loan, so it needs to be included.

I hope that answers your questions.

Sorry I wan't super clear, but you answered my question still. Thank you Cara! I was essentially wondering if the PMI that comes with going FHA at 3.5% was already factored into my PITI, or if I would have to factor for that separately when figuring the return on the property. I now know that I have to add that PMI on top of the PITI and will start adding it to my expense calculations.

Thanks again! 

@Cosmo Iannopollo Yeah I was also planning to refi the PMI out with a conventional eventually, but obviously don't want to take losses each month until I do if I am battling the PMI on top. Just wanted to make sure I don't make a rookie mistake haha so now I will configure my numbers knowing that PMI isn't "automatically" added on and I have to add that to my expenses.

Thanks Cosmo! 

@Tyler Jordison I did make that mistake, just got lucky that the place was priced well enough for me to overcome it. Good luck on the search. You can't beat an outlay of around $7K for that type of asset. 

@Tyler Jordison

You have to factor the upfront MI into the loan amount.

Example

On your 200K purchase, the loan amount would be 193000.  The upfront MI gets added to the loan amount and financed so it's in the "P" portion of P and I.  In this instance, your purchase price would be 200,000.  Your loan amount would be 193000.  Your upfront MI amount is 3377 (add that number to the 193000).  Your payment would be based off a new loan amount of 196377.  At 3.75%, your principal and interest payment would be about $909, your monthly MI payment would be about $136 and then add hazard and taxes for the total payment.

Moderator, we don't do FHA at US Commercial, so this is not a solicitation.

Stephanie

Originally posted by @Tyler Jordison :
Originally posted by @Cara Lonsdale:

Do you mean adding the extra to figure if you qualify?  Or add the extra as part of the expense for figuring your return?

I am a little confised by what you are asking, but I will try my best to answer with what you have given me.

The answer to both is YES. Yes, you have to figure the entire payment (PITI) and any PMI/MI when determining if you qualify for the loan. You would also add in any HOA payments or assessments that would be expected in your monthly payment burden. THis is often times why people lean towards houses instead of condos in markets where the price difference isn't that much, because by the time you add on the HOA payment, that could've gotten you more house for the money.....anyway,

IF you are asking if you use the entire payment amount to calculate income and expenses for the proeprty to see if it is a cash flowing property or not, the answer is also YES. You want to include ANY expense for the property when figuring your return. The PMI/MI is part of the expense to obtaining the loan, so it needs to be included.

I hope that answers your questions.

Sorry I wan't super clear, but you answered my question still. Thank you Cara! I was essentially wondering if the PMI that comes with going FHA at 3.5% was already factored into my PITI, or if I would have to factor for that separately when figuring the return on the property. I now know that I have to add that PMI on top of the PITI and will start adding it to my expense calculations.

Thanks again! 

The "bottom line" PITI number your lender gave you will include mortgage insurance.

If you're using an online calculator that is assuming conventional, then...

- Bump loan amount by 1.75% manually before entering. 

- Add the 0.85% mortgage insurance as homeowner's insurance, if there isn't a spot for mortgage insurance. Meaning if you think HOI will be $75 and your FHA mortgage insurance will be $150, enter $225 as your HOI expense and things like CoC ROI that it spits out will be accurate.

Chris Mason, Lender in CA (#1220177) and California (#1220177)
415-846-9211

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