3 min read fha

Can mortgage insurance ever be removed on an FHA mortgage?

Can mortgage insurance ever be removed on an FHA mortgage?

Short Answer:

Unlikely. For FHA mortgages orginated after June 2013, mortgage insurance stays on the mortgage for the life of the mortgage. Except if you put 10%+ down payment when you orginated the mortgage, then mortgage insurance drops off after year 11. The other way to stop paying mortgage insurance is to refinance into a conventional mortgage and have 20%+ equity in the property.

Longer Answer:

FHA loans, backed by the Federal Housing Administration, are popular among homebuyers due to their lower down payment requirements and more lenient credit criteria. One of the common questions that arise is whether mortgage insurance can be removed.

Understanding FHA Mortgage Insurance

FHA mortgage insurance is composed of two parts:

  1. Upfront Mortgage Insurance Premium (UFMIP): This is a one-time fee paid at closing, typically 1.75% of the loan amount. This fee can be rolled into the new loan amount vs brining this fee to the table as an additional closing costs.
  2. Annual Mortgage Insurance Premium (MIP): This is an ongoing fee, paid monthly, and is a percentage of the loan amount. The specfic percentage varies based on the loan term, loan amount, and loan-to-value (LTV) ratio.

Can FHA Mortgage Insurance Be Removed?

The possibility of removing mortgage insurance from an FHA loan depends on when the loan was originated and the terms of the loan:

  1. Loans Originated Before June 3, 2013:
    • If you have an FHA loan that was originated before June 3, 2013, you can have the MIP removed once you have reached 22% equity in your home, provided you have made payments for at least five years.
  2. Loans Originated On or After June 3, 2013:
    • For loans with a term greater than 15 years, MIP cannot be removed for the life of the loan if the original LTV was greater than 90%. If the original LTV was 90% or less, MIP can be removed after 11 years.
    • For loans with a term of 15 years or less, MIP can be removed after 11 years if the original LTV was 90% or less. If the original LTV was greater than 90%, MIP cannot be removed for the life of the loan.

Refinancing to Remove Mortgage Insurance

If you are unable to remove the MIP through the above methods, refinancing into a conventional loan might be a viable option. Here’s how refinancing can help:

  • Equity Requirement: If you have built up at least 20% equity in your home, you can refinance into a conventional mortgage without needing mortgage insurance. If you don't have 20% equity, conventional mortgages have tiers of mortgage insurance that you can be placed into. With conventional mortgage financing, your mortgage insurance can be removed by asking your mortgage servicer once you hit 80% of the appraised value.
  • Improved Credit Score: If your credit score has improved since you took out your FHA loan, you might qualify for better terms including lower interest rates and lower or no private mortgage insurance.
  • Closing Costs: Refinancing a mortgage will come with closing costs. You must compare the closing cost of the refinance of the mortgage vs the proposed monthly savings. If the closing costs vs proposed monthly savings are too high, refinancing at that time might not make sense.

Conclusion

Removing mortgage insurance from an FHA mortgage is possible under very limited conditions, primarily depending on the origination date and term of your mortgage. For those who are not eligible for MIP removal, refinancing into a conventional loan remains a practical alternative.

Have additional questions about removing FHA mortgage insurance, I am happy to help. Reach out to me at teamjd@mainstreethl.com

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This blog is for informational purposes only. Make sure you understand the features associated with the loan program you choose, and that it meets your unique financial needs. Subject to Debt-to-Income and Underwriting requirements. This is not a credit decision or a commitment to lend. Eligibility is subject to completion of an application and verification of home ownership, occupancy, title, income, employment, credit, home value, collateral, and underwriting requirements. Not all programs are available in all areas. Offers may vary and are subject to change at any time without notice. Should you have any questions about the information provided, please contact me.