Pay Extra On Your Monthly Payment
One way to get rid of FHA MIP faster is to pay extra each month toward your home loan. Paying an additional amount toward the principal balance each month, or periodically throughout the year, will expedite the repayment period, sometimes substantially. While this method does not allow you to request cancellation of FHA MIP, it does mean you are eliminating your total mortgage obligation faster.
Wait For Pmi To Terminate Automatically
When does PMI drop off? According to the PMI Cancellation Act, your PMI payment drops off when your loan balance reaches 78% of the original value of your home. You dont need a new appraisal because the homes value is based on the appraised value when you purchased it or when refinanced into a new loan.
Your PMI termination will also happen when you reach the midpoint of your loan, even if your loan balance isnt 78% of your homes original value. This can happen if you had an interest-only period or perhaps a stretch of loan forbearance. On a 30-year loan, the midpoint would be at 15 years.
In both cases, you must be up-to-date on your loan payments to have your PMI removed. If you have late payments, your PMI will be cancelled once your loan is in good standing.
When Can I Remove Private Mortgage Insurance From My Loan
Federal law provides rights to remove PMI for many mortgages under certain circumstances. Some lenders and servicers may also allow for earlier removal of PMI under their own standards.
The federal Homeowners Protection Act provides rights to remove Private Mortgage Insurance under certain circumstances. The law generally provides two ways to remove PMI from your home loan: requesting PMI cancellation or automatic or final PMI termination.
Request PMI cancellation
You have the right to request that your servicer cancel PMI when you have reached the date when the principal balance of your mortgage is scheduled to fall to 80 percent of the original value of your home. This date should have been given to you in writing on a PMI disclosure form when you received your mortgage. If you can’t find the disclosure form, contact your servicer.
You can ask to cancel PMI earlier if you have made additional payments that reduce the principal balance of your mortgage to 80 percent of the original value of your home. For this purpose, original value generally means either the contract sales price or the appraised value of your home at the time you purchased it, whichever is lower .
There are other important criteria you must meet if you want to cancel PMI on your loan:
Automatic PMI termination
Final PMI termination
Other things to keep in mind about the Homeowners Protection Act
Don’t Miss: What Do Mortgage Loan Officers Do
Choose A Different Government Loan Type
If you really want to avoid MIP payments, you may want to consider another type of government loan.
You may be buying a home in a rural area and have a median FICO®Score of 640 or higher. In that case, why not consider a USDA loan? Unlike an FHA loan, USDA loans dont require a down payment. You also dont need to pay PMI or MIP with a USDA loan. Instead, you pay a monthly guarantee fee thats less expensive than the FHA monthly premium.
On the other hand, you might want to consider a VA loan if youre a current or former member of the armed forces or a qualifying spouse. To qualify for a VA loan, youll need a median FICO®credit score of at least 620 and a DTI ratio of 60% or less. Theres no down payment requirement for a VA loan. You also dont have to pay any type of monthly mortgage insurance on a VA loan. Instead, youll pay a one-time VA funding fee and the home must be your primary residence. Veterans receiving VA disability benefits and surviving spouses of veterans who passed in the line of duty or as a result of a service-connected disability are exempt from the funding fee.
Contact a Home Loan Expert to learn more about these FHA loan alternatives and to find out whether you qualify.
Should You Use A Streamline Fha Refinance To Remove Mip
Mortgage insurance is a big part of the FHA program. When you took out your FHA loan, you paid an upfront mortgage insurance premium. You also pay the MIP each month with your mortgage payment. What if you want to remove MIP? Is it possible? If so, should you do so with the FHA Streamline Program?
The answer is two-fold. Yes, you can remove mortgage insurance premium, but you cannot do it with the streamline program. If you were to refinance with the streamline loan, you would start the process all over again. Youd pay another upfront MIP and you would owe mortgage insurance for the life of the loan or until you pay it off.
Also Check: What Credit Score Is Needed For Usaa Auto Loan
How To Remove Conventional Private Mortgage Insurance
You have more options to cancel mortgage insurance if you have a conventional loan with PMI.
You can simply wait for your PMI coverage to drop off. By law, lenders must cancel conventional PMI when you reach 78% loantovalue.
Many home buyers opt for a conventional loan because PMI drops while FHA MIP does not go away on its own unless you put down 10% or more.
Keep in mind most mortgage lenders base the 78% LTV on their last appraised value and not the original value at the time of purchase.
If your property value has gone up substantially, contact your current loan servicer and check its requirements to cancel early.
The servicer may require a new appraisal, or rely on its own internal valuation tools to determine your homes uptodate value.
You can also cancel conventional PMI with a refinance.
The appraisal for your refinance loan serves as proof of current value. If your loan amount is 80% or less of your current value, you do not incur new PMI.
Removing Fha Mortgage Insurance Premium
If your loan is guaranteed by the Federal Housing Administration , the above PMI removal methods do not specifically apply in the same way.
If you received your FHA mortgage prior to June 3rd, 2013, then your FHA mortgage insurance will be automatically removed when your principal balance reaches 78% of your original loan, based off the original purchase price, as long as at least 5 years has passed since the origination of the loan.
Mortgages with an FHA case number assignment date on or after June 3, 2013 the FHA insurance can be terminated by the servicer or holder if the mortgage is paid in full before the maturity date.
Alternatives To Fhas Mip
When the FHA increased its MIP in the mid-2000s, the FHA loan became a less attractive option. The January 2015 MIP reduction could make FHA-insured loans more competitive, but that still doesnt mean the FHA loan will be the best or cheapest choice for every borrower.
Some low-down payment loans, other than the FHA loan, allow borrowers to cancel their mortgage insurance after theyve built up a certain amount of equity in their home. Homeowners can build equity through mortgage repayment, value appreciation or both.
In some cases, borrowers must request mortgage insurance cancellation. In other cases, the lender is required to cancel the insurance. The cancellation rules can be complicated, but borrowers have an opportunity to get rid of mortgage insurance at some point. With an FHA loan, it is more difficult for borrowers to stop paying for mortgage insurance.
This restriction can make an FHA loan more expensive than the other options, especially if the borrower keeps the loan for many years. If the borrower sells the home or refinances within a few years, the MIP cancellation requirements are not as material.
Borrowers who have an FHA loan may be able to stop paying for mortgage insurance once certain conditions are met.
As of June 2013, borrowers who have less than 10 percent equity must pay MIP for the life of their loan. Borrowers who have 10 percent equity or more must pay MIP for the full term of their loan or 11 years, whichever occurs first.
Remove Mortgage Insurance Premium On Fha Loans
Unlike private mortgage insurance, mortgage insurance premium is charged exclusively on FHA loans.
MIP payments are split up. First, you pay an initial upfront premium at closing. The remaining premium is amortized monthly over the life of your loan, says Stockwell.
Note that on FHA loans with LTV ratios between 70% and 90%, MIP is required to be paid for 11 years.
But with LTVs at 90.01% or more, the MIP must be paid for the entire loan term. So if you have an LTV of, say 91%, and you have a 30-year FHA loan, youll pay MIP for 360 payments, says Stockwell.
This is true unless you refinance or pay off your mortgage early.
If you have an FHA loan, and build more than 30% equity in your home before the required 11-year MIP period is up, a refinance could help you ditch the insurance costs early.
Also Check: Usaa Used Auto Loan Rates
Fha Loan To Conventional Loan Refinance And Drop Mortgage Insurance
If you have an FHA loan, youll want to read this.
Look, weve all been there, youre a first-time homebuyer, youre worried about having enough for a downpayment, and an FHA loan makes sense for youbecause of its more flexible underwriting standards. You can qualify with a credit score of 580 and put down as little as 3.5%. Thats pretty great!
If you have an FHA loan, you probably already know that:
- The home you purchase must be your primary residence.
- FHA loans require that the buyer pay Mortgage Insurance Premium over the life of the loan.
- Theres also an additional upfront MIP charge of 1.75% of the loan amount that is traditionally financed into the total loan.
Currently, rates are historically low, so its a great time to consider graduating from your FHA to a Conventional mortgage if you plan to stay in your home long term.
Now, lets talk about conventional loans, shall we?
Conventional loans are a bit different. In general, if you put down less than 20% you may have to pay mortgage insurance, either monthly or upfront. But if you work with a Homespire Loan Officer, they may be able to work their magic and help you eliminate MI altogether, whether or not you make that 20% down payment.
If you do have to pay MI on your Conventional loan, once you hit 22% equity, it drops off forever. With an FHA loan, you pay that mortgage insurance for the life of the loan, no matter how much equity youve earned.
Be sure to so you dont miss out on future mortgage wisdom.
Annual Mortgage Insurance Premium
Annual MIP is included in your monthly mortgage payment and goes into an escrow account set up by your loan servicer. You must carry MIP for the life of the loan if your down payment is less than 10%.
You will pay an annual mortgage insurance premium between .45 and 1.05% basis points depending on the loan-to-value ratio and loan amount.
This is actually a great deal the FHA mortgage insurance premium used to be over 1%. However, it was recently lowered per Mortgagee Letter 2015-01.
You May Like: Va Loan Requirements For Mobile Homes
Terms Less Than Or Equal To 15 Years
Heres what you can expect to pay for your annual MIP if your loan term is less than or equal to 15 years. Lets say you:
- Borrow less than or equal to $625,500, with a down payment of at least 10%. Youll pay 0.45% annually. On a $150,000 home loan, thats $675 every year, or $56.25 each month.
- Borrow less than or equal to $625,500, with a down payment of less than 10%. Youll pay 0.70% annually. On a $150,000 home loan, thats $1,050 every year, or $87.50 each month.
- Borrow more than $625,500, with a down payment greater than or equal to 22%. Youll pay 0.45% annually. On a $700,000 home loan, thats $3,150 every year, or $262.50 per month.
- Borrow more than $625,500, with a down payment greater than 10% but less than 22%. Youll pay 0.70% annually. On a $700,000 home loan, thats $4,900 a year, or about $408.33 per month.
- Borrow more than $625,500, with a down payment less than 10%. Youll pay 0.95% annually. On a $700,000 home loan, thats $6,650 a year, or about $554.17 per month.
How Much Is Fha Mortgage Insurance Premium
Your FHA loan MIP will involve two payments: an upfront premium and an additional annual payment. The amount youll pay for both depends on the size of your loan.
Your MIP upfront payment will be equal to 1.75% of the total value of your loan. For example, if you borrow $150,000 to buy a home, youll pay $3,500 for your upfront payment. Your upfront MIP is due at closing. Alternatively, it can be added onto the balance of the loan. Your upfront payment is only due once unless you refinance or take on another FHA loan in the future.
Your annual mortgage insurance costs will vary depending on how much money you borrow, your down payment size and the length of your mortgage term. Lenders calculate your annual payment as a percentage of your base loan value. Most FHA lenders add your annual MIP to your monthly mortgage payment. To find out how much youll pay each month, simply divide your annual payment by 12.
Lets take a closer look at what you can expect to pay depending on your term.
Recommended Reading: Usaa Auto Loan Approval
To Get Rid Of Fha Mortgage Insurance: Check Your Loan Balance
You can request the cancellation of your FHA mortgage insurance when you meet certain requirements.
If you bought a house with an FHA loan some years back, you may be eligible to cancel your FHA PMI today. This option is attractive because it wont require you to get a new mortgage. If your loan balance is 78% of your original purchase price, and youve been paying FHA PMI for 5 years, your lender or service must cancel your mortgage insurance today by law.
While a low mortgage balance is a sure-fire way to cancel FHA mortgage insurance, it can take a while to get there. On a 30-year fixed FHA loan, it will take you about ten years to pay your loan down to 78% of the original purchase price. If youre not quite there, continue making payments for a few more years, or make a one-time principal payment.
Borrowers who have hit the magical 78% loan-to-value ratio can potentially start saving hundreds on their monthly payments and keep their existing FHA loan and interest rate intact.
What Is An Fha Mortgage Insurance Premium
FHA mortgage insurance protects against the risk that you default, or stop making payments, on your FHA loan. The Federal Housing Administration insures your FHA loan in the event that this happens and you wind up being unable to pay it back. Your FHA mortgage insurance premium , along with the premiums paid by more than 817,000 other FHA loan borrowers last year, helps cover the cost of that insurance.
You already paid one portion of the MIP when you closed on your home that was your upfront insurance. The upfront MIP equals 1.75 percent of the amount you borrowed, and was likely bundled into your loan and all those papers you signed before you got the keys to your home.
The second portion of the MIP is the part youre paying now, your annual MIP, which varies based on individual loan terms. Annual MIP rates depend on three key factors:
Based on these factors, youll pay between 0.45 percent and 1.05 percent of the loan principal for your annual MIP.
- The 0.45 percent rate applies if you have a 15-year loan and more than 10 percent equity in your home.
- The 1.05 percent rate applies if you have a loan term longer than 15 years, and the amount you borrowed exceeded $625,500.
- More than likely, youre paying an annual MIP of 0.85 percent, which is the rate that applies to borrowers who put down less than 5 percent on a 30-year FHA loan for $625,500 or less.
How To Cancel An Fha Mortgage Insurance Premium
In 2013, the Department of Housing and Urban Development issued a press release that outlined the steps the FHA would take to increase its capital reserves. Among other things, HUD announced they would charge annual mortgage insurance for the life of the loan, in most cases.
Here iss an excerpt from that press release:
FHA will also require most borrowers to continue paying annual premiums for the life of their mortgage loan. This will permit FHA to retain significant revenue that is currently being forfeited prematurely.
And here is a direct quote from the policy letter sent to lenders:
For any mortgage involving an original principal obligation with a loan-to-value ratio greater than 90%, FHA will assess the annual MIP until the end of the mortgage term or for the first 30 years of the term, whichever occurs first.
So, for borrowers who use the customary 3.5% down payment option in 2017, the only way to cancel the annual MIP is to either pay off the loan or refinance. Otherwise, the mortgage insurance premium will stick with the loan for its full term, or at least up to 30 years.