If you have an FHA loan, you may be wondering how to get rid of the mortgage insurance premium (MIP) you pay each month.
Unlike conventional loans, FHA loans come with mandatory mortgage insurance, regardless of the amount of your down payment, and paying it off can be challenging and, in some cases, impossible. Here’s how to get rid of mip on an fha loan if you’re eligible.
when can you cancel mip on an fha loan?
“There are a number of factors that come into play when determining whether or not fha mortgage insurance can be canceled,” explains alan aldinger, vice president of media relations for pnc bank. “The most important factor is when the case number was assigned for a borrower’s current fha loan.”
The first place to look is the origination date of your loan:
- July 1991-December 2000: If your date of origin falls between these two markers, you cannot cancel your fha mortgage insurance premiums.
- January 2001-3 June 3, 2013: Your mip will be canceled once you reach a loan-to-value (ltv) ratio of 78 percent.
- June 3, 2013-present: Your mip will only be canceled once your mortgage is paid in full, unless you made a down payment of at least 10 percent. if so, your mip will be canceled after 11 years.
how to remove mip from an fha loan
if you want to stop paying mortgage insurance on your fha loan, contact your lender to see if you are eligible for fha mip removal. The above dates play a key role in any flexibility in the terms of your loan and therefore help you determine how to remove mip from the fha loan.
Unfortunately, you won’t have much leverage in terms of fha mortgage insurance removal if your ltv is higher than 78 percent (for loans originated between January 2001 and June 3, 2013) or if you put down less than 10 percent (for loans originating after June 3, 2013).
However, there are other options to consider, including refinancing a conventional loan.
refinancing to eliminate fha mip
if your lender determines that mip cannot be removed, it’s time to consider whether you should refinance your fha loan to a conventional loan. Here are some key considerations to make before you refinance:
- credit score: how does your credit look now compared to how it looked when you got your fha loan? If you’ve come a long way, you may qualify for a conventional loan with a better rate and no PMI 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 the house worth more today due to rising property values or a remodeling project?
- closing costs: refinancing isn’t free. You will have to pay the closing costs of the new loan, which can add up to thousands of dollars. While it will feel good to get rid of annual mip, make sure that refinancing will also save you a good amount of money and will be worth it in the long run. Bankrate’s mortgage refinance calculator can help you decide.
FAQ about fha mip removal
what is an fha mortgage insurance premium (mip)?
fha mortgage insurance protects against the risk of default or default on your fha loan. The Federal Housing Administration (FHA) insures your FHA loan in case this happens and you are unable to repay it. Your FHA mortgage insurance premium (MIP), along with the premiums paid by more than 846,000 other FHA loan borrowers last year, helps cover the cost of that insurance.
how much does mip cost?
You already paid part of the mip when you closed the purchase contract for your house; that was his initial insurance. The initial mip is equal to 1.75% of the amount she borrowed, and was probably included in her loan and in all the documents she signed before she received the keys to her house.
The second part of the mip is the part you’re paying now, your annual mip, which varies depending on the terms of the individual loan. Annual IPM rates depend on three key factors:
- the total amount of your loan
- the time you agreed to pay it off
- the loan-to-value ratio
Depending on these factors, you’ll pay between 0.45% and 1.05% of the loan principal for your annual mip.
- 0.45 percent rate applies if you have a 15-year loan and more than 10 percent equity in your home.
- 1.05 percent rate applies if you have a loan for more than 15 years. years, and the amount you borrowed was more than $625,500.
- A typical annual mip is 0.85 percent, which is the rate that applies to borrowers who put less than 5 percent into a loan from the 30-year fha for $625,500 or less.