What is FHA Mortgage Insurance?
FHA mortgage insurance protects lenders against loan default and allows them to bear less risk. If a borrower defaults on a loan, the FHA pays claims based on requirements established by FHA.
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FHA mortgage insurance protects lenders against loan default and allows them to bear less risk. If a borrower defaults on a loan, the FHA pays claims based on requirements established by FHA.
To learn more about HUD multifamily construction loans like the HUD 221(d)(4) loan, fill out the form below and a HUD lending expert will get in touch.
Related Questions
What is FHA mortgage insurance?
FHA mortgage insurance protects lenders against loan default and decreases risk for lenders. In the event of default, the FHA pays claims based on FHA criteria. HUD 232 and HUD 232/223(f) loans are both insured by the FHA.
For more information, please see What is FHA Mortgage Insurance? and FHA Mortgage Insurance in Relation to HUD 232 Loans.
How does FHA mortgage insurance work?
FHA mortgage insurance works by protecting lenders against loan default and decreasing risk for lenders. In the event of default, the FHA pays claims based on FHA criteria. HUD 232 and HUD 232/223(f) loans are both insured by the FHA. For more information, please see What is FHA Mortgage Insurance? and FHA Mortgage Insurance in Relation to HUD 232 Loans.
What are the benefits of FHA mortgage insurance?
FHA mortgage insurance provides lenders with protection against loan default and decreases risk for lenders. It also pays claims in the event of default based on FHA criteria. HUD 232 and HUD 232/223(f) loans are both insured by the FHA, which provides additional benefits such as:
- Lower down payment requirements
- Lower closing costs
- More flexible credit requirements
- More lenient debt-to-income ratios
Source: What is FHA Mortgage Insurance? and FHA Mortgage Insurance in Relation to HUD 232 Loans
What are the requirements for FHA mortgage insurance?
The Federal Housing Administration (FHA) requires mortgage insurance premiums (MIPs) for all HUD 241(a) loans. In addition, an FHA application fee of 0.30% of the entire loan amount is required, as well as an FHA inspection fee of 0.50% of the loan amount. You can find more information about HUD 232 insurance requirements here and more information about HUD 241(a) loans here.
How much does FHA mortgage insurance cost?
FHA mortgage insurance costs an upfront fee of 1% of the loan principal and an annual fee of 0.95% of the loan principal. Certain projects may qualify for a reduced mortgage insurance premium, which could range from 0.25% to 0.35%.
For example, if a multifamily investor buys an apartment building using $10 million of HUD financing, that means they would owe HUD $100,000 at closing, just to cover the MIP costs. After the first year, the borrower would need to provide annual MIPs, which are a bit lower — but still significant.
You can find more information about HUD 241(a) Supplemental Financing for HUD Multifamily Loans here and Your Guide to HUD Mortgage Insurance Premiums here.
How long does FHA mortgage insurance last?
FHA mortgage insurance lasts for the life of the loan. For FHA 232/223(f) Acquisitions & Refinancing for Healthcare Properties, the loan must last a minimum of 10 years and the maximum term is 35 years or 75% of the remaining life of the facility, fully amortizing. For FHA and HUD 223(a)(7): Refinancing Existing HUD Loans, the term of the loan may be extended by up to 12 years, as long as the new term does not exceed the initial loan term — 40 years in the case of a 221(d)(4) loan and 35 years for 223(f) financing.