FHA Loan - MMI and 78% equity question
August 30, 2009 9:52 AM   Subscribe

FHA - Do I need to pay MMI on an FHA backed loan when starting out with 78% LTV?

I read here that "If you pay an upfront mortgage insurance premium, the annual premium stays in place until the loan-to-value of your mortgage reaches 78 percent of the initial sales price or the appraised value of your home, whichever was lower. The premiums must be paid for at least five years."

What if I start out with 78% LTV (I put 22% down), then do I even have to pay MMI? I only qualify for an FHA loan (see below) and would like to avoid MMI if possible.

For those wondering why I am putting so much down on an FHA loan, it is because of this little gem. I owned a home and had to move for a new job. I am renting out my old home but want to buy a home where I moved to. My rental income from my old home cannot be used as part of the qualification unless I have 30% equity for a conventional loan and 25% equity for an FHA backed loan. FHA allows rental income to be considered regardless of equity in the rental home if the person had to move for work. I have about 12% equity (thanks to the housing collapse, but at least I am not underwater) so I don't qualify using the 30%/25% rule, but I do qualify using the FHA "move for work" exception.

Your expertise in all areas is always greatly appreciated.
posted by mjger to Work & Money
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