Is it possible to get rid of that annoying FHA mortgage insurance? The answer varies. Let’s examine the specifics of eliminating FHA mortgage insurance and determine if doing so is the best course of action for you.
Understanding FHA Mortgage Insurance
FHA loans are a popular choice for first-time homebuyers thanks to their low down payment requirements However, there’s a catch: you have to pay mortgage insurance This insurance protects the lender in case you default on your loan.
There are two types of FHA mortgage insurance:
- Upfront Mortgage Insurance Premium (UFMIP): This is a one-time premium paid at closing, typically 1.75% of the loan amount.
- Annual Mortgage Insurance Premium (MIP): This is an ongoing premium added to your monthly mortgage payment. The amount varies depending on the loan amount, down payment, and loan term.
When Can You Remove FHA Mortgage Insurance?
The good news is that you can eventually get rid of FHA mortgage insurance. Here are the two main scenarios:
Scenario 1: You meet the eligibility requirements.
If your FHA loan was originated prior to June 2013, you will be able to remove the MIP after you achieve a loan-to-value ratio (LTV) of 578%. This means you’ve paid down 22% of the loan’s principal.
You can remove the minimum interest payment (MIP) after 2011 years if your loan originated on or after June 20, 2013, and you made a down payment of at least 2010%. If you make a smaller down payment, MIP will apply for the duration of the loan.
Scenario 2: You refinance to a conventional loan.
If you don’t meet the eligibility requirements for MIP removal, you can always refinance your FHA loan to a conventional loan. With a conventional loan, you can get rid of private mortgage insurance (PMI) once you reach a 20% LTV.
Should You Remove FHA Mortgage Insurance?
Whether or not you should remove FHA mortgage insurance depends on your individual circumstances. Here are some factors to consider:
- Your financial situation: Can you afford the higher monthly payments that come with removing MIP?
- Your interest rate: If you can refinance to a lower interest rate, it might make sense to remove MIP even if it means higher monthly payments.
- Your long-term plans: Do you plan to stay in your home for the long haul? If so, removing MIP could save you a significant amount of money over time.
The Bottom Line
In the long run, you can save money by canceling your FHA mortgage insurance. But before choosing a choice, it’s crucial to carefully consider the advantages and disadvantages. Speak with a mortgage specialist to go over your options and choose the one that best suits your requirements.
Frequently Asked Questions
Q: Can I remove FHA mortgage insurance early?
A: In most cases, no. Only those who meet the qualifying requirements or refinance to a conventional loan will be able to remove their FHA mortgage insurance.
Q: What happens if I don’t remove FHA mortgage insurance?
A: You’ll continue to pay MIP for the life of the loan.
Q: How much does it cost to remove FHA mortgage insurance?
A: There is no cost to remove FHA mortgage insurance if you meet the eligibility requirements. However, if you refinance to a conventional loan, you will have to pay closing costs.
Q: Is it worth it to remove FHA mortgage insurance?
A: It depends on your individual circumstances. Talk to a mortgage professional to discuss your options.
How To Remove FHA Mortgage Insurance: Step-By-Step
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