FHA Mortgage Insurance (MMI)           

First-Time Homebuyer with HUD-Approved Pre-Purchase Counseling

 First-time homebuyers (as defined below) who will be obtaining a mortgage with an LTV greater than 95 percent and whose decision credit score is in the 559-500 range are entitled to a reduction of their upfront mortgage insurance premium from 2.25 percent to 2.00 percent provided the homebuyer completes HUD-approved pre-purchase counseling. 

A first-time homebuyer is an individual who has had no ownership in a principal residence during the 3-year period ending on the date of purchase (closing date) of the property.  A first-time homebuyer includes any individual that has only owned with a former spouse while married and also includes an individual who has only owned a principal residence not permanently affixed to a permanent foundation, or a property that was not in compliance with State, local, or model building codes and cannot be brought into compliance for less than the cost of constructing a permanent structure.  If any of the occupant-owners on the mortgage meet this definition, then the mortgage is considered as having been made to a first-time homebuyer.  

Pre-purchase counseling must be obtained from a HUD-approved housing counseling agency, a participating agency of a HUD-approved housing counseling intermediary or a state Housing Finance Agency receiving HUD housing counseling grant funds, and the counseling must occur prior to execution of the sales agreement.  With this requirement, it is FHA’s intent to encourage borrowers to participate in meaningful counseling prior to the decision to purchase a home, not to create an incentive or burden for lenders to have borrowers re-execute the sales contract in order to receive a reduced premium.

The counseling may be completed up to one year before the homebuyer signs a purchase agreement (executes a sales contract) for the subject property. It must be one-on-one, face-to-face counseling unless a hardship can be demonstrated, and then the counseling may be conducted one-on-one over the telephone.  The counseling must consist of, but is not limited to:   

·      Budgeting and credit, including an analysis of the household’s unique financial/credit situation;

·      Assessing homeownership readiness, including an evaluation of home and monthly payment affordability;

·      Development of a written action plan outlining the steps the household and the counselor will take to help the household meet their goals;

·      Financing a home, including a discussion of alternative types of mortgage loans/features and special financing products, common lending documents, and steps in the loan application, approval, and closing processes;

·      Shopping for a home, including understanding the professionals involved in the process; and

·      Maintaining a home, including preventive maintenance, taxes, and insurance;    

 Even if group sessions or homebuyer education classes cover the topics above, they do not meet the level of one-on-one counseling needed to receive the reduced mortgage insurance premium.  To find a list of housing counseling agencies, please visit the Department’s website at http://www.hud.gov/offices/hsg/sfh/hcc/hccprof14.cfm.

Programs Covered by Risk-Based Premiums

Risk-based premiums and the requirements described here apply to those forward mortgages insured under FHA’s Mutual Mortgage Insurance (MMI) fund, the Section 203(k) rehabilitation mortgage insurance program, and individual condominium units insured under Section 234(c).  Risk-based premiums do not apply to mortgages insured under Title I of the National Housing Act, nor to reverse mortgages under FHA’s Home Equity Conversion Mortgage (HECM).  Risk-based premiums also do not apply to Section 223(e)(declining neighborhoods), Section 238(c)(Military Impact areas in Georgia and New York), Section 247 (Hawaiian Homelands), and Section 248 (Indian Reservations).

Refinance Transactions

The mortgage insurance premium for refinance transactions will depend on several variables.  These include whether the refinance is of a FHA-insured mortgage to another FHA-insured mortgage, as under FHA’s streamlined refinance options, is a rate-and-term refinance or is a refinance under the FHASecure initiative.  Except for streamlined refinances and mortgage refinancing under the FHASecure initiative, the new LTV and new decision credit score determine the mortgage insurance premiums. Additional information is provided below:  

Full Qualifying Refinances (e.g., rate-and-term; FHASecure refinance of a conventional mortgage not presently delinquent; cash-out refinances; any that require complete underwriting).  These refinances are subject to the mortgage insurance premiums based on the LTV and decision credit score for the refinance application.  

Streamline Refinances.  The mortgage insurance premiums charged are subject to whether the existing FHA-insured loan being streamline refinanced was charged premiums based on A) the pre-July 14, 2008 premium structure of 150/50 basis points or B) the post July 14, 2008  LTV/decision credit score premium schedule.  The following examples illustrate the appropriate premiums that will be charged for streamline refinances.

 A.     FHA-insured loans pre-July 14, 2008/Borrower paid 150/50 basis points

 ·        Borrowers with an existing FHA-insured loan where the case number for the streamline refinance transaction was assigned before July 14, 2008, will be charged 150 basis points upfront and 50 basis points annually.  On subsequent streamline refinances where the case number is assigned on or after July 14, 2008 borrowers will be charged 100 basis points upfront and 50 basis points annually. 

·        Borrowers with an existing FHA-insured mortgage where the case number for the streamline refinance transaction was assigned on or after July 14, 2008, will be charged 100 basis points upfront and 50 basis points annually.  On subsequent streamline refinances borrowers will be charged 100 basis points upfront and 50 basis points annually.

 B.      FHA-insured loans On or After July 14, 2008/Borrower paid Risk-based Premium  

·        Borrowers with an existing FHA-insured mortgage (purchase or full qualifying refinance transaction) where the case number for that existing mortgage was assigned on or after July 14, 2008, will be charged premiums on the subsequent streamline refinance transaction using the decision credit score and LTV for the existing mortgage being refinanced.   

·        If the streamline refinance transaction is “credit qualifying” (with or without an appraisal) premiums are based on the new decision credit score and the LTV from the existing mortgage being refinanced. 

Borrowers who refinanced their delinquent non-FHA ARM into an FHASecure mortgage are not eligible to streamline refinance their FHASecure mortgage.  The refinance transaction subsequent to the FHASecure mortgage must be a full qualifying refinance. 

Previous Case Number.  To determine the case number of the loan being refinanced, lenders may use the Case Query screen in FHA Connection using the borrower’s name, address and/or social security number.  

Premium Feedback.  The Case Number Assignment screen in FHA Connection will provide a feedback message with the appropriate premium to be charged for refinance transactions. 

Refund of Upfront Premiums.  Refunds of upfront premiums are available to borrowers refinancing to another FHA-insured mortgage within a three-year time period, as shown below.   

On any refinance where the MIP refund exceeds the Upfront MIP required on the new loan, the overage will be refunded directly to the borrower from HUD.  The lesser of the MIP refund or the new upfront MIP should be subtracted from the unpaid principal balance before calculating the new mortgage amount.

15 Year and Shorter-Term Mortgages

Mortgages with terms of 15 years or fewer have a slightly different upfront and annual premium structure due to the risk shorter-term mortgages represent.  The mortgage insurance premium matrix is shown below:

Additional Information about FHA’s Risk-Based Premiums

• Except for streamline refinances, premiums are the same for purchase and refinance transactions, i.e., based solely on the decision credit bureau score and the loan-to-value ratio

• There are no “add-ons” to the premiums or other adjustments to the mortgage insurance premiums for property type, e.g., multiple unit properties and mortgages on manufactured housing

• The source of the downpayment is not a factor in determining the mortgage insurance premium

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