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Does an FHA Loan Require PMI?
If you have been shopping around for different mortgage options, you’ve likely come across the FHA Loan. This mortgage is administered by the Federal Housing Administration. It allows home buyers to purchase a home with a low down payment, often as low as 3.5% of the purchase price. There are a few stipulations to use the FHA Loan as well as additional steps that you’ll need to take to pay it back.
Just like with any mortgage, you must qualify for the amount of the purchase. Your lender will look at your debt-to-income ratio as well as the home value and other factors. Overall, they want to determine if you are in a financial position to pay the loan back. The Federal Housing Administration does not actually issue the loan. Instead, they guarantee the amount. You will work with an independent lender who works with the FHA to offer this type of mortgage.
Is PMI Required?
When using an FHA Loan, you will need to pay something similar to private mortgage insurance or PMI. It is called MIP or monthly insurance premium. This extra amount is added to your monthly payment. Once you reach a higher amount of equity, either through paying your mortgage down or a significant change in the housing market, you may be able to refinance your loan so that you no longer have to pay the monthly MIP. Depending on how much you put as a down payment and/or the term of the loan in the beginning, this premium may no longer be required after 11 years.
Who Can Use an FHA Loan?
The FHA Loan is a good option for first-time home buyers or those who don’t have a hefty down payment saved up. This is not a requirement, however. Anyone can apply for an FHA Loan, even if they have purchased a home before. There are not income limitations or requirements beyond what your lender requires to approve you for the amount that you want to borrow. The FHA Loan is also a great loan for those with lower credit scores, high debt-to-income ratios and derogatory credit events that happened not too long ago.