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How to Cancel FHA Mortgage Insurance

How to Cancel FHA Mortgage Insurance

December 4th, 2019 | Government Loans, FHA Loans

Mortgage loans made by the Federal Housing Administration can be a huge help to homebuyers without a large down payment. FHA loans require down payments of as little as 3.5%. Traditional loans often require 20%. Yet FHA mortgages come with some strings attached, namely FHA mortgage insurance.

Almost all mortgage loans made with less than a 20% down payment require some form of mortgage insurance. This insurance protects the lender against losses from the borrower defaulting in the first several years of the loan. It is typically paid monthly and is tacked onto the mortgage payment. With conventional loans, borrowers pay private mortgage insurance. It can be cancelled after the borrower’s loan-to-value ratio reach 78%. 

FHA loan borrowers are required to pay an FHA mortgage insurance premium (MIP). Borrowers will have to pay a 1.75% upfront fee. This can be rolled into the total cost of the loan, making the monthly payments slightly higher. The actual monthly FHA MIP will cost between 0.45% and 1.05%, depending on the size of the loan, the size of the down payment and the length of the mortgage term. For example, $200,000 FHA loan with a down payment less than 5% will be charged an 0.85% MIP, or roughly $1700 per year. 

FHA MIP is not as easily canceled as private mortgage insurance. With conforming 15-year or 30-year FHA loans, borrowers who put at least 10% down at the beginning of the loan will have to pay FHA MIP for 11 years, no matter how low the LTV falls. Borrowers who put less than 10% down are required to pay FHA MIP for the life of the loan, with no option to cancel. (The exception to these rules is FHA loans that were made before June 3, 2013. They can be canceled with a 78% LTV if the loan is in good standing.)

There is another way to effectively cancel FHA MIP: by refinancing into a non-FHA mortgage. If you qualify for a VA loan because of military service or family connection, you can refinance without making any down payment or having to pay any mortgage insurance.

If VA loans are not applicable, a conventional loan could be a good refinance option. They sometimes require 5% in down payments or existing equity, but private mortgage insurance on conventional loans is not required for the life of the loan and can be cancelled as soon as you have about 20% equity in your home. If the housing market prices appreciate rapidly, you could gain that much equity in just a year or two, saving you thousands of dollars in insurance costs. And even if you are not able to cancel PMI quickly, the premiums are typically less expensive than FHA mortgage insurance premiums.

FHA mortgages are a great way to break into the housing market. While it is no longer easy to cancel FHA MIP, once you have established yourself in your loan and your home, you may have other options. Refinancing into a conventional loan and private mortgage insurance can help you save a lot over the course of your loan.

Call us today at 847-257-7278 to find out what options you have to eliminate FHA mortgage insurance premiums from your loan.

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Prime 1 Bancorp, Ltd is not affiliated with any government organization or bank nor do we act on behalf of the FHA or VA. This material is not from HUD or FHA and has not been approved by HUD or a government agency. We are not a Federally chartered or State Chartered Bank. We are an we are an Illinois Residential Mortgage Licensee by the Office of Banks and Real Estate Lic #MB.6761138, a California CFL Licensed Mortgage Brokerage by Department of Business Oversights Lic #60DB055973, a Colorado Registered Mortgage Brokerage by Division of Real Estate, a Florida Residential Mortgage Brokerage Licensed by the Office of Financial Regulation Lic #MBR1930 dba Prime 1 Mortgage Inc, a Kentucky Mortgage Loan Broker Licensed by the Office of Financial Institutions Lic #MB729362, a Tennessee Licensed Mortgage Broker by the Department of Financial Institutions Lic #218020, a Texas SML Licensed Mortgage Brokerage by the Texas Department of Savings and Mortgage Lending, and a Wisconsin Licensed Mortgage broker by the Department of Financial Institutions Lic #1434638BR Prime 1 Bancorp, LTD Corporate Office is located at 2720 S. River Rd Suite 50, Des Plaines, IL 60018 our Toll Free Number is 888-205-3737. NMLS: 1434638

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Figure: 7 TAC §80.200(b)

"CONSUMERS WISHING TO FILE A COMPLAINT AGAINST A COMPANY OR A RESIDENTIAL MORTGAGE LOAN ORIGINATOR SHOULD COMPLETE AND SEND A COMPLAINT FORM TO THE TEXAS DEPARTMENT OF SAVINGS AND MORTGAGE LENDING, 2601 NORTH LAMAR, SUITE 201, AUSTIN, TEXAS 78705. COMPLAINT FORMS AND INSTRUCTIONS MAY BE OBTAINED FROM THE DEPARTMENT’S WEBSITE AT WWW.SML.TEXAS.GOV. A TOLL-FREE CONSUMER HOTLINE IS AVAILABLE AT 1-877-276-5550.

THE DEPARTMENT MAINTAINS A RECOVERY FUND TO MAKE PAYMENTS OF CERTAIN ACTUAL OUT OF POCKET DAMAGES SUSTAINED BY BORROWERS CAUSED BY ACTS OF LICENSED RESIDENTIALMORTGAGE LOAN ORIGINATORS. A WRITTEN APPLICATION FOR REIMBURSEMENT FROM THE RECOVERY FUND MUST BE FILED WITH AND INVESTIGATED BY THE DEPARTMENT PRIOR TO THE PAYMENT OF A CLAIM. FOR MORE INFORMATION ABOUT THE RECOVERY FUND, PLEASE CONSULT THE DEPARTMENT’S WEBSITE AT WWW.SML.TEXAS.GOV.