How to Remove FHA Mortgage Insurance?
How to Remove FHA Mortgage Insurance?
FHA mortgage loans have a mandatory borrower paid mortgage insurance policy and monthly premium (MIP) that protects the lender from potential losses.
This FHA mortgage insurance policy must be paid by the borrower regardless of how much money has been put down at closing or equity in the home at time of refinance.
FHA homebuyers and homeowners are required to make monthly payments for their mortgage insurance premiums on all FHA loans.
If you have an FHA loan there are conditions that may allow you to cancel the FHA Mortgage Insurance Premium (MIP).
To determine if you will qualify to remove the FHA mortgage insurance premium, you will need to know the date your loan was originated, and the amount of home equity or down payment at the time closing.
To find out what options are available to remove mortgage insurance – just follow the simple steps provided below.
Verify Eligibility to Remove FHA MIP
To be eligible for the removal of your FHA loan's mortgage insurance premiums, you must meet one of the following criteria.
If you applied for your mortgage before June 3, 2013, make sure that you comply with the following requirements:
- You have no 30-day late mortgage payments in last 12 months.
- With a 20, 25 or 30-year loan, you've already paid for at least five years. However, there's no time limit on the 15-year mortgage option available.
- Your mortgage balance is at 78% of the value of your home.
If you finalized your loan after June 3, 2013, it's essential that the following requirements are met:
- You purchased or refinanced with 10% equity in your home.
- No 30 day late mortgage payments for the last 12 months.
If you do not meet either of the two conditions mentioned above, canceling your FHA MIP while maintaining your FHA loan will not be possible.
Without meeting the criteria to remove FHA mortgage insurance you will need to refinance to a conventional mortgage loan or Veteran Administration mortgage loan.
To refinance into a conventional mortgage to avoid FHA mortgage insurance than, the following criteria must be met for conventional mortgage refinance eligibility.
To qualify for a conventional refinance, you’ll need to have:
- Minimum credit score of 620
- At least 5% equity in your home
- 20% equity in home for no mortgage insurance
The above stated requirements could differ depending on which loan type or lender you use.
To guarantee that you meet all conditions for a refinance or cancellation of MIP, it is best to speak with a Home Loan Expert before you proceed.
Review Your Options to Remove FHA MIP
Before you determine whether to refinance your FHA loan or cancel the MIP, it's important to evaluate the advantages of each.
For certain borrowers, refinancing may be a far better choice than cancelling their MIPs - even if they are eligible for cancellation.
What are the benefits of FHA Mortgage Insurance Removal
By removing the MIP, you can potentially save hundreds of dollars a month. The monthly savings from removing the MIP can now be applied to the principal loan balance each month.
As an example, we will show you how much interest you can save by applying your monthly savings from removing FHA mortgage insurance towards the principal loan balance each month.
Savings from Removing FHA Mortgage Insurance
If you take out an FHA loan for $250,000 with an interest rate of 5% and have a typical monthly payment of $1,342, it would usually require around 30 years before full repayment is completed.
However, simply adding an extra $100 each month could reduce this timeline by 4 years and 3 months while allowing you to save as much as $ 38,730.72 on interest payments!
Benefits of a Conventional Refinance Loan vs. FHA Mortgage
Refinancing your FHA mortgage can provide a significant financial savings for borrowers.
Conventional loans offer borrowers the ability to avoid monthly mortgage insurance based on their current loan to value (LTV).
A Conventional loan may allow you to eliminate MIP payments and receive a lower interest rate mortgage.
The sum of removing FHA mortgage insurance and obtaining a lower interest rate will deliver a substantial financial savings and lower monthly payment.
It is important to understand that a lower credit score rating could limit your ability to receive a lower rate.
If you possess an inadequate score right now, it may be best for you to defer refinancing until your credit has improved or seek out refinance options tailored towards borrowers with lower credit ratings.
FHA Mortgage Insurance Cancellation
If you obtained a mortgage between January 2001 and June 3, 2013, your MIP should be canceled when you reach 22% equity in your home.
Those who finalized the mortgage process on or later than June 3rd, 2013 will have their MIP waived after 11 years if they made a down payment above 10%.
However, with less than 10%, customers will need to pay premiums for the duration of their loan. To ensure that payments aren't being collected anymore once it's been cancelled; check statements regularly!
If you have noticed MIP payments reflected on your mortgage statements, even though you meet the criteria for cancellation, don't hesitate to reach out to your lender.
Ask them to confirm that you are eligible and then take steps towards canceling this coverage. With a few simple conversations with your lender, those unnecessary charges could be gone in no time!
FHA Loan Refinance to remove MIP
If you're considering a refinance, the process is like getting any other home loan. Make sure you inform your lender that you plan to transition from an FHA mortgage into a conventional one for them to remove your MIP.
After providing your loan officer with details concerning your current mortgage, the approval process will begin. Once you have gone through closing on the new loan, your FHA mortgage will be closed and replaced by a newer one - complete with an updated payment amount, interest rate, and term.
