Getting an FHA loan can be a great option for homebuyers who want to purchase a home with a low down payment. FHA loans only require a 3.5% down payment, making them one of the most affordable mortgage programs out there.
However, there is a tradeoff – FHA loans require you to pay mortgage insurance premiums (MIP) for the life of the loan. Here’s what you need to know about removing MIP from an FHA loan.
What is MIP on an FHA Loan?
MIP stands for “mortgage insurance premiums” This is a fee you pay to insure your FHA loan
MIP protects the lender in case you default on the loan. Since FHA loans allow such small down payments, there is a higher risk of default. MIP helps offset that risk.
There are two types of MIP on an FHA loan:
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Upfront MIP – This is a one-time fee of 1.75% of the loan amount, paid at closing. On a $200,000 loan, this equals $3,500.
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Annual MIP – An annual fee of 0.85% of the loan amount, paid monthly. On a $200,000 loan balance, this equals $158/month.
MIP can really add up over the life of an FHA loan. On that $200,000 loan example, you’d pay $30,000+ in MIP over 30 years.
Luckily, there are options for removing MIP and stopping these payments.
When Can I Remove MIP from My FHA Loan?
Whether or not you can cancel MIP depends on when you originated your FHA loan:
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FHA loans from before June 2013 – MIP can be removed once you reach 78% loan-to-value (LTV) ratio. This usually occurs through normal amortization, as you pay down the loan.
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FHA loans after June 2013 – If you put down less than 10%, you’ll pay MIP for the life of the loan. If you put down 10% or more, MIP cancels after 11 years.
Once you hit these thresholds, the servicer will automatically cancel FHA MIP as long as you’re in good standing on the loan.
How to Remove MIP from an FHA Loan
If you meet the criteria to cancel MIP based on when you originated your loan, the process is simple.
Your servicer will automatically cancel FHA MIP once you reach the threshold – either 78% LTV for older loans, or 11 years seasoning for newer loans with 10%+ down.
You don’t have to do anything except make sure you have a history of on-time payments.
If your MIP hasn’t been removed automatically, contact your servicer to confirm you’ve met the requirements. They should be able to cancel FHA MIP for you.
alternatives for removing MIP
If your FHA loan doesn’t qualify for MIP cancellation, you have alternatives:
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Refinance into a conventional loan – With a conventional loan, you won’t have monthly MIP. However, if your LTV is above 80%, you may have to pay PMI until you reach 20% equity.
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FHA Streamline Refinance – You can refinance into a new FHA loan at a lower interest rate. This restarts the clock on removing MIP, getting you closer to the 11-year mark.
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Pay down the loan – Making extra payments to pay down your loan faster will help you reach that 78% LTV threshold more quickly.
Consider running the numbers to see if any of these options make sense to remove MIP sooner and reduce your long term costs.
5 Tips for Getting Rid of MIP
Follow these tips to remove MIP from your FHA loan as quickly as possible:
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Check your loan origination date – This determines if/when you can request cancellation.
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Make additional payments – Paying extra each month will help you reach 78% LTV faster.
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Improve your home – Increasing your home value through renovations can help you build equity to hit 78% LTV.
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Refinance – Refinancing resets the clock, getting you closer to 11-year automatic cancellation.
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Contact your servicer – Confirm you’ve met requirements for removal if it doesn’t happen automatically.
Is It Always Worth Removing MIP?
Removing FHA MIP can save you a lot of money over the long run. However, refinancing or recasting your loan to remove MIP usually comes with fees.
Before pursuing these options, run the numbers to see if the upfront costs outweigh the long term savings on MIP.
Additionally, if you refinance into a conventional loan, you may have to pay PMI if your LTV is above 80%. Compare costs of PMI vs. FHA MIP.
Do the math for your specific loan situation to decide if removing MIP makes sense.
Alternatives to an FHA Loan
If you haven’t purchased your home yet, consider these alternatives to avoid MIP:
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Conventional 97 – 3% down payment with no MIP, ideal credit required
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va loan – 100% financing for veterans, no monthly MIP
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usda loan – 100% financing for rural properties, no MIP
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piggyback loan – 80/10/10 structure avoids MI with 10% down
While FHA loans offer lenient guidelines, the tradeoff is expensive MIP. Weigh your options to pick the best loan program for your needs.
The Bottom Line
Removing MIP from an FHA loan can save you thousands of dollars over the life of your mortgage. Pay close attention to loan age, down payment amount, and equity milestones to request cancellation as soon as possible.
Refinancing or recasting can also allow you to remove MIP sooner. Do the math to see if paying fees upfront makes sense for your situation. And consider alternative loan programs when purchasing to avoid MIP altogether.
Frequency of Entities:
Refinance into a conventional loan: 2
https://www.bankrate.com/mortgages/remove-fha-mortgage-insurance/: 1
https://mymortgageinsider.com/how-to-get-rid-of-mortgage-insurance-on-fha-loan-today/: 1
How To Remove FHA Mortgage Insurance: Step-By-Step
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How to Eliminate Mortgage Insurance Premium from FHA Loans?
FAQ
Can FHA MIP be removed?
How long does MIP last on an FHA loan?
Can I get rid of PMI without refinancing?
How many years does it take to remove PMI when you have an FHA loan?
Can I cancel my FHA mortgage insurance if I have MIP?
If your FHA loan originated on or after June 3, 2013, you are not eligible for FHA mortgage insurance cancellation. However, if you’ve built at least 20 percent equity in the home, you can get rid of MIP by refinancing into a conventional loan with no PMI. Veterans could also look into VA loan options.
Can I get rid of MIP on my FHA loan?
You may have heard that MIP is a required element of all FHA loans, but you may be able to get rid of it under certain circumstances. Much like private mortgage insurance (PMI) on a conventional mortgage, MIP is designed to protect the lender against losses in case the homebuyer defaults on the loan.
How long does FHA MIP last?
Depending on your down payment, and when you first took out the loan, FHA MIP usually lasts 11 years or the life of the loan. MIP will not fall off automatically. To remove it, you’ll have to refinance into a conventional loan once you have enough equity. How do I get rid of FHA mortgage insurance?
Does FHA MIP go down every year?
If your loan balance goes down — as it should — every year, your FHA MIP will go down, too. This happens because MIP is charged as a percentage of your loan balance. You’ll pay a premium based on your original loan amount only in the first year. Does FHA mortgage insurance ever increase? The FHA changes its MIP rates from time to time.