Private mortgage insurance (PMI) is an additional cost required by most lenders when you take out a conventional loan with less than 20% down. With an FHA loan, this insurance is called mortgage insurance premium (MIP) and is required regardless of your down payment amount. MIP can add hundreds of dollars to your monthly mortgage payment, so you may be wondering if and how you can remove PMI from an FHA loan.
When Can PMI be Removed from an FHA Loan?
Whether and when you can cancel MIP depends on when you originated your FHA loan:
-
If your FHA loan was originated between July 1991 and December 2000, unfortunately you cannot cancel MIP over the life of the loan
-
If your loan originated between January 2001 and June 2013, MIP can be removed once you reach 78% loan-to-value (LTV) ratio. This happens automatically when you reach 78% equity through payments and appreciation.
-
If your loan originated after June 2013 and you put down at least 10%, MIP will automatically cancel after 11 years. With less than 10% down, you’ll pay MIP for the full term.
How to Remove MIP from an FHA Loan
If you don’t qualify for automatic cancellation, there are a couple potential options for removing MIP:
Refinance to a Conventional Loan
The main way to remove MIP from an FHA loan is to refinance to a conventional loan. With a conventional loan, you may be able to avoid private mortgage insurance, but there are a few key factors:
-
Loan-to-value (LTV) ratio – Conventional loans require PMI if your LTV is above 80%. So you’ll need sufficient equity built up to get a new loan under 80% LTV.
-
Credit score – Your credit will be checked again for a refinance. Improved credit can help you qualify for better rates/terms.
-
Interest rates – Current rates need to be lower than your existing FHA loan to make refinancing worthwhile. You’ll also have closing costs again.
-
Home value – Appreciation or renovations since you purchased can help lower your LTV for a refi.
Do the math carefully to ensure refinancing into a conventional loan makes financial sense for your situation before moving forward.
FHA Streamline Refinance
An FHA streamline refinance allows you to refinance into a new FHA loan at lower rates/payments, without an appraisal. This option keeps MIP in place but can still save money each month if rates are lower enough to offset the MIP cost.
You need to have made at least 6 months of on-time payments on your current FHA loan to qualify. There are also caps on how much the loan amount can increase and limits on cash back at closing.
Mortgage Modification
If you’re struggling to make payments, contact your lender/servicer to discuss options like loan modifications or partial claims. This won’t remove MIP but could help make payments more affordable in hardship situations.
What Happens When MIP is Removed?
When mortgage insurance premiums are removed from your FHA loan:
-
Your monthly mortgage payment will decrease, putting more money back in your pocket each month.
-
You can put those MIP savings toward other financial goals like retirement, college savings, or paying down principal faster.
-
Your loan balance and interest payments will decrease quicker since more of your payment goes to principal once MIP is gone.
Removing mortgage insurance, whether PMI or MIP, is a great way to reduce monthly housing costs and pay off your mortgage faster. Carefully consider if and when it makes sense to refinance an FHA loan to remove MIP based on your specific loan details, finances, and goals.
Frequently Asked Questions
How much does MIP cost on an FHA loan?
MIP on FHA loans typically costs between 0.45% to 1.05% of the original loan amount annually. On a $200,000 loan that equals $900 to $2,100 extra per year.
Can I cancel PMI when I reach 20% equity?
With a conventional loan you can request PMI removal at 20% equity. FHA loans require MIP for the life of the loan or until you hit 78% LTV, depending on the origination date.
Does an FHA streamline refinance remove MIP?
No, an FHA streamline keeps MIP in place. You’d need to refinance into a conventional loan to potentially remove mortgage insurance.
What is the difference between PMI and MIP?
- PMI = Private Mortgage Insurance on conventional loans
- MIP = Mortgage Insurance Premiums on FHA loans
They refer to the same required insurance for low down payment mortgages, just different terminology based on the loan type.
Can I use a cash-out refinance to remove MIP?
You can if you cash-out refinance from FHA to a conventional loan with at least 20% equity. This allows you to tap equity while potentially removing mortgage insurance.
How To Remove FHA Mortgage Insurance: Step-By-Step
Your Credit Profile Excellent 720+ Good 660-719 Avg. 620-659 Below Avg. 580-619 Poor ≤ 579
When do you plan to purchase your home? Signed a Purchase Agreement Offer Pending / Found a House Buying in 30 Days Buying in 2 to 3 Months Buying in 4 to 5 Months Buying in 6+ Months Researching Options
Do you have a second mortgage?
Are you a first time homebuyer?
Consent:
By submitting your contact information you agree to our Terms of Use and our Privacy Policy, which includes using arbitration to resolve claims related to the Telephone Consumer Protection Act.! NMLS #3030
Congratulations! Based on the information you have provided, you are eligible to continue your home loan process online with Rocket Mortgage.
If a sign-in page does not automatically pop up in a new tab, click here