How To Remove Mortgage Insurance On FHA Loan

rSnapshot Photography/Shutterstock

Loans insured by the Federal Housing Administration, or FHA loans, require the borrower to pay an FHA mortgage insurance premium (MIP). These are additional fees that the borrower pays upfront and over the life of the mortgage, regardless of the amount of the down payment. Canceling these premiums can be difficult, but not impossible. Here’s how to waive your FHA mortgage insurance premiums.

What is FHA Mortgage Insurance?

FHA borrowers are required to pay FHA mortgage insurance premiums no matter how large their down payment is. FHA mortgage insurance includes both an upfront premium, often paid at closing, and an annual premium that may have to be paid over the life of the loan.

Borrowers with conventional loans only need to pay private mortgage insurance (PMI) if their down payment on the mortgage is less than 20%. And once the borrower reaches 20% equity in the home, they can cancel the PMI.

How to remove FHA mortgage insurance

1. Check your eligibility

According to Jim Breese, PNC Bank’s senior vice president of product development, when trying to determine whether a borrower can cancel an MIP, “the most important (factor) is the case number for the borrower’s current FHA loan. It is the allotment date.”

FHA eligibility is as follows mortgage insurance premium The breakdown of deletions is as follows for each loan start date.

• FHA mortgage insurance premiums cannot be canceled if the insurance start date is between July 1991 and December 2000. You must continue making payments during the loan term.
• If the start date is between January 2001 and June 3, 2013, the MIP will typically be canceled when it expires. Loan-to-value ratio (LTV) 78 percent.
• If the start date is after June 3, 2013, down payment In at least 10% of cases, the MIP is revoked after 11 years. If your down payment is less than 10%, you will pay MIP over the life of the loan.

2. Understand your options

There are two main ways to eliminate mortgage insurance. FHA loan:

Wait for automatic deletion (if applicable)

If you meet the eligibility requirements to remove MIP from your FHA loan, your mortgage servicer will automatically cancel your premium once you meet the criteria (78% LTV ratio or 11 years, depending on the loan). There is a need. This assumes you have paid your mortgage on time and are in good standing. If your premium has not been canceled, please contact your servicer.

Refinancing to a conventional loan

If you don’t qualify for automatic removal, or if you do but want to lose your MIP sooner, consider the following: Refinance an FHA loan to a conventional loan. With conventional loans, you can cancel PMI once you have 20% equity in your home. (Depending on how much you paid on your loan, you may not have to pay PMI at all after refinancing conventionally.) Here are some important considerations.

• interest rate: Generally, if you can get a mortgage, it makes sense to refinance. refinance rate This is at least one-half to three-quarters of a percentage point lower than current interest rates.
• Credit score: If your credit score has improved since taking out your first loan, you may qualify for a conventional loan with a more favorable interest rate. Conventional loans typically require a credit score of at least 620, but the higher your credit score, the better your chances of qualifying.
• LTV ratio: The LTV ratio is the mortgage balance divided by the property’s value and affects your ability or need to refinance. PMI. So, evaluate the value of your home in addition to how much you paid on your FHA loan. Is the value currently increasing due to rising real estate values? Major renovations you’ve made?If so, the LTV ratio will decrease. The lower the LTV, the stronger the candidate.
• refinance closing costs: You’ll need to pay closing costs when refinancing, so let’s calculate them. Are the upfront costs of refinancing worth the savings in the long run? Our mortgage refinance calculator It will help you know how long it will take you to break even and make a profit from your refi.

3. Contact your servicer

Even if your loan isn’t eligible for MIP cancellation, it’s worth contacting your servicer anyway, especially if you’re having trouble making payments. Your servicer can help you explore loan modifications and other options.

What happens after I cancel my mortgage insurance?

When mortgage insurance is removed, your monthly mortgage payment will be reduced. The cost of MIP ranges from 0.15 percent to 0.75 percent of the loan principal, depending on the amount borrowed and the term of the loan. Most borrowers pay 0.55%.

In total, even if you’re only paying about $100 a month into your MIP, you can put that money toward emergency savings or another financial goal. Alternatively, you can use the surplus toward the principal of your mortgage. this is helpful pay off your loan faster And you’ll pay less interest overall.

Should I remove MIP from my FHA loan?

At first glance, removing MIP seems like a simple matter. However, if you are considering refinancing, just Think carefully before removing a MIP.

First, you may need to pay mortgage insurance on your new loan. Conventional loans require you to pay PMI if your LTV ratio is 80% or higher, and that PMI can be higher than an FHA MIP.

On the other hand, PMI is easy to remove. you can Request PMI cancellation Once you have 20% equity in your home, you pay it off with a conventional loan. Additionally, the Homeowner Protection Act requires a mortgage lender or servicer to automatically terminate PMI when the loan-to-value ratio, or mortgage balance, reaches 78% of the home’s purchase price.

Also note how expensive your new mortgage will be. Refinancing can reduce your monthly payments and total interest, which may more than offset your insurance premium payments. However, if funds increase due to refinancing, interest rate And the payment is also not worth it. Calculate the numbers carefully.

FAQ