FHA Mortgage Insurance

[Tyler Jordison]

Hello BP, 

I am getting ever closer to house hacking my first small multi on an FHA loan and have a quick question -

We plan on buying with an FHA 3.5% loan, 30 year. I know this comes with two mortgage insurance premiums. The upfront premium of 1.75% of the loan amount (can be rolled into loan amount), and the annual premium. For my 30-year at 3.5% my annual premium would be 0.85% of the loan.

Lets say I am looking for a property that will cost 200K. My annual premium would be (0.0085) * 200,000 = 1,700/year divided by 12 = $141.67 per month. My question is this - when I am running reports on properties (lets say on the BP calcs), do I have to add $141.67 EXTRA per month, in the calculation or is this already accounted for in the P&I? I figured added extra, but I wanted to check for sure. 

Thanks all! 

[Cara Lonsdale]

Do you mean adding the extra to figure if you qualify?  Or add the extra as part of the expense for figuring your return?

I am a little confised by what you are asking, but I will try my best to answer with what you have given me.

The answer to both is YES. Yes, you have to figure the entire payment (PITI) and any PMI/MI when determining if you qualify for the loan. You would also add in any HOA payments or assessments that would be expected in your monthly payment burden. THis is often times why people lean towards houses instead of condos in markets where the price difference isn't that much, because by the time you add on the HOA payment, that could've gotten you more house for the money.....anyway,

IF you are asking if you use the entire payment amount to calculate income and expenses for the proeprty to see if it is a cash flowing property or not, the answer is also YES. You want to include ANY expense for the property when figuring your return. The PMI/MI is part of the expense to obtaining the loan, so it needs to be included.

I hope that answers your questions.