How to remove mortgage insurance on an FHA loan
If you got your FHA loan after the year 2000, you may be able to cancel your FHA mortgage insurance.
If you got your loan before 2000, you'll continue to pay the premiums in most cases.
If your loan doesn't qualify for automatic cancellation, refinancing is the best way to eliminate MIP.
Loans insured by the Federal Housing Administration, or FHA loans, require borrowers to pay FHA mortgage insurance premiums (MIP). These are additional fees borrowers pay both up front and over the course of the mortgage term, regardless of the down payment amount. Eliminating these premiums can be challenging, but it's not impossible. Here's how to get rid of FHA mortgage insurance premiums.
No matter how large a down payment FHA borrowers make, they're required to pay FHA mortgage insurance premiums. FHA mortgage insurance includes both an upfront premium that's often paid at closing and an annual premium that may have to be paid for the life of the loan.
Borrowers who take out a conventional loan only have to pay for private mortgage insurance (PMI) if they put down less than 20 percent on their home. And once a borrower has achieved 20 percent equity in the home, they may cancel PMI.
The most important factor determining whether your FHA mortgage insurance premium can be canceled is the date your loan was originated.
Here's how eligibility breaks down by loan origination date:
If your origination date was between July 1991 and December 2000: You can't cancel your FHA mortgage insurance premiums. You'll need to keep paying them for the life of the loan.
If your origination date was between January 2001 and June 3, 2013: Your MIP is typically canceled when you reach a loan-to-value (LTV) ratio of 78 percent.
If your origination date was after June 3, 2013 and you made a down payment of at least 10 percent: Your MIP will be canceled after 11 years. For down payments of less than 10 percent, you'll pay MIP for the life of the loan.
Learn more: Estimate your monthly mortgage costs
There are two primary ways to eliminate mortgage insurance from an FHA loan:
If you meet the eligibility requirements to remove MIP from an FHA loan, your mortgage servicer should automatically cancel the premiums once you meet the criteria: a 78 percent LTV ratio or 11 years, depending on the loan. That's assuming you're in good standing with a record of on-time mortgage payments. If you qualify, and your premiums haven't been canceled, contact your servicer.
If you don't qualify for automatic removal — or you do, but want to eliminate the MIP sooner — consider refinancing your FHA loan to a conventional loan. With a conventional loan, you may cancel PMI once you've reached 20 percent equity in your home. Depending on how much you've paid on your loan, you may not need to pay PMI at all after refinancing to a conventional. Here are a few key considerations:
Interest rates: In general, it makes sense to refinance if you can get a refinance rate that's at least half to three-quarters of a percentage point less than your current rate.
Credit score: If you've improved your credit since you took out your original loan, you might qualify for a conventional loan with a better rate. Conventional loans typically require a minimum credit score of at least 620, though the higher your credit score, the more likely you are to qualify.
LTV ratio: A LTV ratio is a mortgage balance divided by the value of the property, and it influences your ability to refinance, as well as the need for PMI. So, in addition to how much you've paid on your FHA loan, take stock of the value of your home. Is it worth more today due to rising property values or a major renovation? If so, that'll lower your LTV ratio and improve your chances of qualifying and the terms you're offered.
Refinance closing costs: You'll need to pay closing costs to refinance, so do the math: Will the upfront cost of refinancing be worth the savings in the long run? Our mortgage refinance calculator can help you see how long it'd take to break even and then start profiting from the refi.
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 a loan modification or other options.
Once mortgage insurance is removed, your monthly mortgage payment will decrease. MIPs range in cost from 0.15 percent to 0.75 percent of your loan principal, depending on how much you borrowed and the loan's term. Most borrowers pay 0.55 percent.
It adds up: Even if you pay only a hundred dollars or so a month in MIP, you could put that money toward emergency savings or another financial goal. Or you might put the extra toward the principal on your mortgage. This will help you pay off your loan faster and pay less interest overall.
At first glance, getting rid of your MIP seems like a no-brainer. However, if you're considering refinancing just to remove MIP, think it through.
You should only refinance to remove MIP if it'll save you money. If you're able to reduce your monthly payments and total interest charges by refinancing — possibly because interest rates have gone down or your credit has improved — then it's a smart move. If you can't get a lower rate by refinancing, you may want to stick with your original loan, even if it includes MIP.
Keep in mind that, if you refinance to a conventional loan and your LTV ratio is 80 percent or higher, you'll still have to pay for mortgage insurance — and PMI could be pricier than FHA MIP. Factor this into your calculations.
How does FHA mortgage insurance work?
FHA loans are insured by the Federal Home Administration — meaning, should the borrower default on the mortgage, the FHA reimburses the lender the outstanding balance. This FHA backing is what encourages lenders to provide financing to borrowers who have lower credit scores, can't manage a 20 percent down payment or who might not otherwise meet the lender's criteria. The FHA mortgage insurance premiums you're charged go towards paying for the FHA's coverage. So, although borrowers pay for it, FHA mortgage insurance actually protects the lenders, covering their risk for issuing the loan.
Can I reduce my FHA mortgage insurance premium?
Possibly. You might be able to reduce FHA MIP by refinancing to another FHA loan at a lower LTV ratio. The U.S. Department of Housing and Urban Development (HUD), which oversees FHA loans, lowered FHA mortgage insurance premiums in 2023.
Can I use a cash-out refinance to remove MIP?
It depends on the type of refi. FHA cash-out refis still incur MIP. Conventional ones and VA ones don't, provided you have enough equity built up in the home — generally, 20 percent of its overall value. But you'd have to ensure you'd be able to maintain that amount of equity, even with your cash takeaway.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Yahoo
21 hours ago
- Yahoo
A First-Time Buyer Was Shocked When Their Escrow Shot Up. Turns Out, A Fixed Rate Doesn't Protect You From Tax And Insurance Hikes
Benzinga and Yahoo Finance LLC may earn commission or revenue on some items through the links below. When a Reddit user and their husband bought a home in 2021, they felt confident with their $1,250 monthly mortgage payment. It was a fixed-rate loan, and they had budgeted carefully. But that confidence quickly turned to confusion when their payment jumped to $1,600. At first, the couple thought their private mortgage insurance had increased. 'We've been in contact with our lender and they said the only way to get off the PMI is to get a home appraisal above $331K,' the person wrote in the r/FirstTimeHomeBuyer subreddit recently. So, her husband paid $500 for an appraisal that did meet the target value. But the lender said it was invalid because the appraiser wasn't on their approved list. They were told they'd need to pay $650 for another appraisal through the lender's channels. Don't Miss: Maker of the $60,000 foldable home has 3 factory buildings, 600+ houses built, and big plans to solve housing — Peter Thiel turned $1,700 into $5 billion—now accredited investors are eyeing this software company with similar breakout potential. Learn how you can Redditors were quick to point out what was really going on. 'Your PMI does not go up. Only your escrow for insurance and taxes can go up,' one top commenter said. Another added, 'Interagency appraisal guidelines prohibit financial institutions from using appraisals ordered directly by the borrower.' The original poster later confirmed what many had suspected: 'I asked our mortgage lender to send our last few escrow reports and it was in fact our hazard insurance causing the increase, not our PMI like we originally thought.' The takeaway was this: even with a fixed interest rate, escrow payments can shift drastically because of tax reassessments and insurance hikes. 'Be prepared for your escrow—property taxes and insurance—to go up even if you got a 'fixed rate' mortgage,' the OP warned. Trending: , which provides access to a pool of short-term loans backed by residential real estate with just a $100 minimum. Many commenters shared similar stories. One person said their mortgage payment rose by $800 due to an insurance lapse and property tax increase. Others explained how taxes often spike after a property changes hands, since previous owners may have had exemptions or lower assessments. 'My homeowners insurance went from $1,400 to $2,800 over a three-year span,' one person said. 'I shopped and found insurance with the same coverage for $1,300 again, only to be told they wouldn't cover the house due to them feeling the roof was old. I was forced to spend $12,000 for a new roof in 30 days.'The good news is that there are options. Homeowners can shop around for better insurance rates, dispute property tax assessments, and ask lenders for a broker price opinion instead of a full appraisal to remove PMI. 'I requested the PMI to be removed and was given two options,' one person explained. 'I went with the BPO and it was only $140. Ten days later, my PMI was removed.' Others suggested reviewing escrow statements annually and proactively paying shortages to avoid ballooning payments. 'If you pay the $1200 shortfall, you will owe $100 more a month. If you don't pay it off all at once, you will owe $200 more a month because you're paying the shortfall plus the extra $100 monthly,' one commenter warned. As for the original poster, she ended the thread with a lesson for others: 'As much as some people like to act like home buying and everything involved is intuitive and common sense, it's really not. So I hope you all can learn from our boo boo.' Read Next: Maximize saving for your retirement and cut down on taxes: . This Jeff Bezos-backed startup will allow you to .This article A First-Time Buyer Was Shocked When Their Escrow Shot Up. Turns Out, A Fixed Rate Doesn't Protect You From Tax And Insurance Hikes originally appeared on Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
2 days ago
- Yahoo
What is mortgage insurance?
Mortgage insurance is a fee you pay to your lender to cover risks associated with funding your loan. Different loan types have different kinds of mortgage insurance, which may require either upfront or ongoing, monthly premiums, or both. Some loans don't require mortgage insurance. For example, you can avoid mortgage insurance with a conventional loan by making a down payment of 20 percent or more. Mortgage insurance is an insurance policy that protects the mortgage lender in case you are unable to pay back your mortgage. It's typically required when borrowers make lower down payments. When someone has less invested in the home upfront, the lender takes on more risk in issuing the mortgage. Mortgage insurance helps cover that risk. Although it covers the lender, and the lender chooses the insurer and the policy, the borrower pays for mortgage insurance. The type of mortgage insurance you'll need depends on the type of loan you have. Options include: Private mortgage insurance (PMI): If you put less than 20 percent down on a conventional loan, you'll pay PMI as part of your monthly mortgage payment. FHA mortgage insurance premium (MIP): All FHA loans require MIP, which involves a monthly payment as well as an upfront payment that can be rolled into your loan amount. VA funding fee: VA loans don't technically require mortgage insurance, but you will need to pay a funding fee at closing — or roll it into your loan balance. USDA guarantee fee: Similar to the VA funding fee, you'll need to pay a guarantee fee to get a USDA loan. There's both an upfront fee and an ongoing fee. Mortgage title insurance: Title insurance protects various parties against liability if there's an ownership dispute or title defect during a home purchase. Lender's title insurance protects the lender, and owner's title insurance protects the owner. Different types of mortgage insurance have different requirements and durations. For example, with a conventional mortgage, you'll pay mortgage insurance as part of your mortgage payment. You can request to cancel PMI once you have 20 percent equity in your home. It will be automatically canceled once you have 22 percent equity. With an FHA loan, everyone pays mortgage insurance, no matter the size of the down payment. You'll pay both upfront MIP and annual MIP. If you make a down payment of less than 10 percent, you can't cancel MIP – you'll pay it for the life of the loan. If you put down 10 percent or more, you'll pay annual MIP for 11 years, or until you refinance or sell. Even with mortgage insurance, you could lose your home to foreclosure if you fall behind on your payments. If it's possible for you to make a 20 percent down payment on a conventional loan, you'll likely receive a lower mortgage rate, in addition to not having to pay for mortgage insurance. The cost of mortgage insurance depends on factors such as: The type of mortgage The loan size The loan term Your initial down payment Your credit score Let's break it down by loan type, using a $400,000 mortgage as an example: Loan type Mortgage insurance rate Cost for a $400,000 loan Conventional loan Average cost ranges from 0.46 percent to 1.5 percent of the loan amount annually, according to the Urban Institute $153 to $500 a month FHA loan Requires an upfront MIP (1.75 percent of loan amount) and annual MIP (between 0.15 percent and 0.75 percent) Upfront: $7,000Annually: $600 to $3,000 USDA loan Includes an upfront guarantee fee of up to 3.5 percent of your loan amount, as well as an annual fee of up to 0.5 percent of your loan amount Upfront: Maximum of $14,000 Annually: Maximum of $2,000 VA loan An upfront fee of 1.25 percent to 3.3 percent of the loan amount $5,000 to $13,200 How is mortgage insurance calculated? Mortgage insurance is calculated based on several variables, including loan amount and loan-to-value (LTV) ratio, or down payment amount. The higher your down payment, the lower your mortgage insurance premium will be. It's pretty clear how this coverage benefits the lender, but how does mortgage insurance work for the borrower? Here are the main pros and cons. Don't need to put 20 percent down to get a mortgage Start building equity more quickly More money to spend on other things, such as furniture or initial repairs, instead of putting it toward a larger down payment Extra expense to pay Can be hard or impossible to cancel, depending on the loan type Protects the lender, not you As the cost of homes continues to rise, it's becoming harder and harder to afford a mortgage payment — let alone to put 20 percent down on a home. If paying mortgage insurance helps you get into a home more quickly — or if saving 20 percent is nearly impossible on your budget — it's likely worthwhile, even if it costs a little more. However, if you really don't want to pay for mortgage insurance, and you can't afford to put 20 percent down, you may explore a couple of options: Down payment assistance programs can offer help with upfront homeownership costs in the form of grants or low-cost loans. Some offer mortgages that don't require mortgage insurance. A piggyback loan involves getting two mortgages to pay for your home: one for 80 percent of the home price, and one for 10 percent. The second, smaller mortgage covers part of the down payment. Finally, you'll make a down payment of 10 percent, bringing you to a 20 percent down payment. Before choosing a piggyback loan, do the math versus the cost of PMI to ensure you'll save money. Is mortgage insurance tax-deductible? No. The itemized deduction for this cost has expired. Unless legislation renews it, you won't be able to claim a tax perk for mortgage insurance premiums. What is the difference between mortgage insurance and homeowners insurance? Mortgage insurance protects the lender if you stop paying your mortgage. Homeowners insurance protects you if you experience a covered loss, for example, if your house burns down in a fire or your home is damaged or destroyed by a tornado. What happens if I stop paying mortgage insurance? You can't simply stop paying for the insurance policy, even if you've reached the required level of equity. You must first contact your lender to get the mortgage insurance policy canceled. However, by law, lenders must cancel PMI on conventional loans when you've reached a 78 percent LTV ratio.
Wall Street Journal
2 days ago
- Wall Street Journal
Week Ahead for FX, Bonds: PMI Data, Middle East Conflict in Focus
Preliminary purchasing managers' surveys in the eurozone, U.K. and U.S. are among the biggest highlights in the week ahead. The surveys on manufacturing and services activity are an important indicator of economic growth. The data come amid concerns about President Trump's tariff policy and the Israel-Iran conflict. Noting that the global PMI data for May signaled some improvements in current and expected future output growth, S&P economists said in a note: 'With tensions rising in the Middle East, pushing oil prices sharply higher, the flash PMI data will be keenly assessed to see whether April really represented 'peak gloom' in terms of business confidence, or whether executives consider the economic and political environment to have deteriorated further.'
