Chapter 16 — Key Takeaways
One page. Everything here is illustrative; verify current figures with HUD.
The core claims
FHA insures; it does not lend. Your employer funds the loan, HUD insures the lender against credit loss out of the Mutual Mortgage Insurance Fund, and Ginnie Mae guarantees the security. Three different parties, three different jobs.
FHA is not a bad-credit loan. It is a loan whose insurance is not priced off the credit score. That single structural fact — not leniency — is why it wins for the borrowers it wins for.
The rulebook is HUD Handbook 4000.1, amended continuously by mortgagee letters whose effective dates are usually keyed to the FHA case number date. Check the handbook, then check the letters. Never quote a premium from memory.
31%/43% is the base cell of the ratio table for MANUALLY underwritten files. It is not a cap. A file with an Approve/Eligible from TOTAL is not measured against it — which is why Harlow Street is approvable at 41.48% / 51.00%.
MIP duration is set by the LTV at origination and never revisited. A 3.5%-down borrower lands at 96.50% and can never reach the 11-year band — not by paying down, not by appreciation, not by a new appraisal. Conventional MI terminates automatically at 78% of original value under the Homeowners Protection Act. FHA's does not terminate at all.
FHA cares about relationships, not just numbers. Identity of interest, non-family non-occupant co-borrowers, interested-party funding of the MRI, and the 100-mile rules are all the same idea: who is standing behind this money and this sale?
The rules and formulas
| Minimum required investment (MRI) | % × adjusted value (lesser of price or appraised value) |
| MRI at 580+ score (illustrative) | 3.5% |
| MRI at 500–579 (illustrative) | 10% |
| UFMIP (illustrative) | 1.75% × base loan, financeable |
| Annual MIP (illustrative) | 0.55% × loan amount ÷ 12 |
| LTV for program purposes | base loan ÷ adjusted value — excludes financed UFMIP |
| MIP duration, term > 15 yrs | ≤ 90% LTV → 11 years · > 90% LTV → life of the loan |
| Manual UW ratio benchmark | 31% / 43%, raised by documented compensating factors |
| MRI source rule | may not come, directly or indirectly, from any interested party |
| Streamline | FHA-to-FHA only · net tangible benefit · nominal cash · no new appraisal |
The Linden Street comparison, in three numbers
Conventional 95% (\$365,750 at 6.625%) vs. FHA 96.5% (\$378,026.69 at 6.250%):
- FHA is **\$17.88/month cheaper** — \$3,015.84 vs. \$3,033.72
- FHA needs **\$5,775.00 less down** — \$13,475.00 vs. \$19,250.00
- FHA costs **\$38,155.54 more** in mortgage insurance — \$62,374.40 vs. \$24,218.86
And the number that reframes it: the financed UFMIP of \$6,501.69 exceeds the \$5,775.00 of cash saved by \$726.69. The down-payment relief is smaller than it looks.
Chapter 13 chose conventional because these borrowers had the \$19,250.00 and still kept 4.16 months of reserves. FHA's relief was convenience, not feasibility.
Where it flips: Harlow Street, 641 score. Conventional MI at that score would cost \$269.38 against FHA's \$96.76**, pushing PITI to **\$2,017.06 and the back-end ratio to 58.12%. FHA is not the cheaper option there — it is the only one.
The four questions, in order
- Can they produce the larger down payment at all? (feasibility)
- Will conventional MI be available, and at what price? (score sensitivity — the flip)
- Will the file get an approval on the conventional path? (ratios, credit)
- How long will they hold it, and where does the MI end? (cost)
Run them in that order. New originators run 4 first because it makes the biggest number, then discover the borrower fails 1.
The things that stop a file cold
CAIVRS hit (any borrower — and any party to the transaction) · LDP / federal exclusion list hit · delinquent federal debt · unresolved or stale FHA case number · property flipping (recent acquisition by the seller) · MPR condition on the appraisal until repaired and certified · identity of interest without a qualifying exception (LTV drops toward 75%).
Key terms
HUD Handbook 4000.1 · mortgagee letter · Section 203(b) · Mutual Mortgage Insurance Fund · minimum required investment (MRI) · adjusted value · upfront mortgage insurance premium (UFMIP) · annual MIP · MIP duration · minimum decision credit score · FHA case number · CAIVRS · FHA appraisal · minimum property requirements · identity of interest · non-occupant co-borrower (FHA) · FHA streamline refinance · net tangible benefit
Monday morning
You should be able to, without opening a spreadsheet: take a purchase price, produce the MRI, the base loan, the LTV, the financed UFMIP, the total loan, the monthly MIP, and — from the LTV alone — the duration category. Then say out loud, in one sentence a first-time buyer will understand, when their mortgage insurance ends under each program.
And you should be able to ask three questions at application that you were not asking last week: Where is every dollar of the down payment coming from, and is any of it connected to the sale? Do you know the seller — are you related, do you work for them, is there any business relationship? Have you ever had a government-backed loan go to default, even a long time ago, even if it was somebody else's fault?
And one habit: before you quote any FHA number with a percent sign or a dollar sign in it, open 4000.1, then check the mortgagee letters issued since its revision date. Two minutes. Every time.