A 30-year FHA loan closes at 96.5% loan-to-value and the borrower asks how long the annual premium will be billed.
Correct Answer
A) For the life of the loan, because the LTV is above 90%
On a 30-year FHA loan the annual premium runs for the life of the loan when the original LTV is above 90%, and for 11 years when it is 90% or below. At 96.5% the borrower pays it until the loan is paid off or refinanced. Other choices: 11 years is the lower-LTV term and does not apply here; 5 years is not an FHA period at all; and the 78% cutoff is the Homeowners Protection Act rule for conventional private mortgage insurance, which FHA premiums do not follow. Source: HUD Handbook 4000.1, annual mortgage insurance premium duration
Why This Is the Correct Answer
On a 30-year FHA loan the annual premium runs for the life of the loan when the original LTV is above 90%, and for 11 years when it is 90% or below. At 96.5% the borrower pays it until the loan is paid off or refinanced. Other choices: 11 years is the lower-LTV term and does not apply here; 5 years is not an FHA period at all; and the 78% cutoff is the Homeowners Protection Act rule for conventional private mortgage insurance, which FHA premiums do not follow. Source: HUD Handbook 4000.1, annual mortgage insurance premium duration
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