What exactly is FHA Mortgage insurance and what is the purpose of mortgage insurance in general? If you are looking at buying a home subsidized by the Federal Housing Authority then you may need to get FHA mortgage insurance. We’ll cover what this type of mortgage insurance is, as well as how to calculate your FHA mortgage insurance premium to a certain degree. Each lender is different and you will have to ask your lender what rates that they use. However, for homeowners without a large down payment, mortgage insurance will generally be required.

So, what exactly is FHA loan mortgage insurance? Mortgage insurance is insurance that is required by lenders to guarantee against default on a mortgage loan. Most mortgage lenders will require the insurance if you are putting less than twenty percent of the cost of the home down. For instance, if you are only putting down $5000 on a $200,000 home, then you will likely be required to get mortgage insurance. On a $200,000 home, twenty percent would be $40,000. Most home buyers cannot afford such a high down payment, especially on their first home, and therefore will be required to purchase mortgage insurance, as part of their monthly payment.

However, FHA mortgage insurance works a little differently. With a conventional mortgage loan, the lender will set the rate, usually somewhere between half a percent to two percent of the total cost of the mortgage per year, excluding any money down. With FHA, you put 1.5 percent of the mortgage up front as an insurance premium and then half a percent per year. So, on a $200,000 home, you would be required to pay 1.5% upfront for the HUD FHA mortgage insurance, or $1500, and then half a percent per year, which would come to $500 or around $40 a month.

The initial down payment is just one of the FHA mortgage insurance requirements. The limits for an FHA loan change often so check the requirements just before you apply, and find out if your home value, minus your down payment is within the limits set by the FHA. You’ll need to find out if you can qualify for an FHA loan as well, and what specific guidelines or restrictions apply to your certain situation. Talk to a HUD (Housing Urban Development) specialist in your area or talk to someone at your local Federal Housing Authority Office.

The FHA mortgage insurance premiums will terminate when several factors have been met. First of all, on a loan term that is more than fifteen years, such as a twenty year or thirty year loan, your loan to value ratio must reach 78% or lower before the insurance will terminate. On a loan term that is less than fifteen years, your mortgage insurance terminates when the loan value is 90 percent or less, as long as the home buyer has made payments for at least five years. Talk to your lender or FHA representative if you have any questions on the FHA mortgages insurance.