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- FHA mortgage insurance removal hinges on certain factors like your loan origination date and your down payment size.
- If you got your loan before 2000, you’re stuck with the FHA mortgage insurance premiums for the life of the loan.
- Loans originated after 2000 might be eligible for FHA mortgage insurance removal in certain cases.
If you have an FHA loan, you might be wondering how to get rid of the FHA mortgage insurance premium (MIP) you’re paying each month.
Unlike conventional loans — which only impose private mortgage insurance (PMI) when down payments are under 20 percent — FHA loans come with mandatory mortgage insurance premiums regardless of the amount of your down payment. Canceling them can be challenging, but not impossible. Here’s how to get rid of FHA mortgage insurance premiums (and when you can’t).
Step-by-step guide to removing FHA mortgage insurance
1. Check your eligibility
Knowing how to get rid of MIPs on an FHA loan isn’t enough. You also need to have a loan that’s eligible for this option. Here’s how eligibility for FHA mortgage insurance removal breaks down by loan origination date:
- If your origination date is between July 1991 and December 2000, you cannot cancel your FHA mortgage insurance premiums. You’ll need to keep paying them for the life of the loan or refinance into a new loan.
- If you received your loan between January 2001 and June 3, 2013, your MIP will be canceled when you reach a loan-to-value ratio (LTV) of 78 percent.
- If your loan originated 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 have to pay MIPs until your mortgage is paid in full.
“There are a number of factors that come into play when determining whether or not the FHA mortgage insurance can be canceled,” says Alan Aldinger, vice president of media relations for PNC Bank. “The biggest factor is when the case number was assigned for a borrower’s current FHA loan.”
In other words, you may be eligible for FHA mortgage insurance removal depending on when you received your loan, along with how much of it you’ve paid off and how much of a down payment you made.
To find out what you’re eligible for, look at your mortgage loan origination date to determine which FHA MIP removal rules apply to you.
2. Understand your options
FHA mortgage insurance removal
If you meet the eligibility requirements to remove MIP from an FHA loan, you can work with your lender to get rid of it once you meet the criteria. For loans originated between January 2001 and June 3, 2013, you have that option once you hit the 78 percent LTV ratio. For borrowers who got their loan after June 3, 2013 and put more than 10 percent down, that becomes an option after 11 years. In both cases, you need to have made on-time payments to be eligible.
If either of those cases apply to you, contact your lender to discuss getting rid of your FHA mortgage insurance premium.
Refinance to a conventional loan
If you or your lender determine you can’t eliminate the MIP, it’s time to think about whether you should refinance your FHA loan to a conventional loan. Here are a few key considerations to make before refinancing:
- Credit score – What does your credit look like now versus what it looked like when you took out your FHA loan? If you’ve improved it, you might qualify for a conventional loan with a better rate, and no private mortgage insurance if your LTV is 80 percent or less.
- LTV ratio – In addition to how much you’ve paid on your existing FHA loan, the value of your home is critical. Is your home worth more today due to rising property values or a major renovation you did on it?
- Closing costs – Refinancing isn’t free. You’ll need to pay closing costs on the new loan, which can add up to thousands of dollars. While it will feel good to be rid of the annual MIP, make sure that refinancing will also save you money and be worth it in the long run. Bankrate’s mortgage refinance calculator can help you decide.
3. Contact your lender
If you meet the criteria for FHA mortgage insurance removal (your loan is eligible based on the origination date and you’ve hit the required LTV ratio or reached the life-of-loan benchmark), reach out to your lender or servicer. They can discuss the next steps with you to cancel the MIP.
If your loan isn’t eligible, still contact your lender. They can explore your refinance options with you. Be advised that you don’t have to refinance with your current lender, though, since any conventional mortgage will help you accomplish your goal of FHA mortgage insurance removal. You should shop refinance options with at least three different lenders to get the best refinance rate.
Should you remove MIP from an FHA loan?
If you’re eligible to remove MIP from an FHA loan after gaining enough equity in your home, it probably makes sense to do so. Simply put, it’s one less payment you’ll have to make.
However, if you’re considering refinancing just to remove MIP, there are a few more things to consider. For one, depending on your equity level, you may still need to pay mortgage insurance. With a conventional loan, PMI is usually required if you have less than 20 percent equity in your home (i.e., a LTV ratio below 80 percent) — and that PMI may be pricier than your FHA MIP. You’ll also need to go through the loan process again, including paying closing costs.
On the plus side, refinancing can reduce your monthly mortgage payments, and that may make up for the higher premiums. Plus, PMI is easier to get rid of. You can request to cancel your PMI on a conventional loan after you reach 20 percent equity — which could be a major advantage, depending on when you received your FHA loan and how much you put down.
Keep in mind: The Homeowners Protection Act of 1998 dictates that your mortgage lender or servicer must automatically terminate PMI when your loan-to-value (LTV) ratio drops to 78 percent — in other words, when your mortgage balance equals 78 percent of the purchase price of your house.
FAQ about FHA mortgage insurance removal
Potentially, if you explore an FHA streamline refinance. While this won’t guarantee FHA MIP removal, a premium reduction could mean lower MIPs if you refi to a lower rate than what you currently have.
No. FHA mortgage insurance removal is wholly contingent on when you got your loan, how much you put down and your loan-to-value ratio.
That depends on how much equity you have in your house. If you have 20 percent equity or more, you won’t need to pay private mortgage insurance on a conventional mortgage.