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How to get rid of FHA Mortgage Insurance Premium
How to get rid of FHA Mortgage Insurance Premium?
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The process of eliminating the FHA Mortgage Insurance Premium (MIP) from your mortgage loan agreement depends predominantly on the loan origination date as well as the current financials of the borrower. Options available are as such:
Improvement refinancing to a Conventional Loan:
How It Works: The most prevalent method of removing the FHA MIP is refinancing the FHA loan and obtaining a conventional loan. Mortgage insurance is optional for conventional loans, provided that the loan-to-value (LTV) ratio is eighty percent or less.
Steps to Refinance:
Increase your Equity: The house must have at least twenty percent equity. This can be achieved by combining paying off some mortgages with real estate appreciation.
Assess Your Credit Rating First: A credit score of 580 is acceptable for many FHA loans. However, borrowers must expect a higher limit for a conventional loan. Aiming for a 620 score will suffice. Of course, getting higher credit scores is more advantageous in getting better rates.
Compare Lenders: Find different lenders and their rates and terms so that you can refinance with the most favorable one.
Do and Submit Application for Refinance: Your application and other supportive papers should be sent to the desired lender.
Considerations: There are conditions when refinancing makes sense only when a lower interest rate is possible and a better loan term can be attained. Savings are possible for MIP waiver, so determining the costs incurred in the remortgaging process is a good idea.
Making FHA Loan Before June 3, 2013:
Termination of Coverage: Modification: If your FHA loan was taken out before June 3, 2013, then MIP will automatically terminate once you have reached the 22% equity threshold as long as you have been paying MIP for at least five years.
Verification of the Loan Agreement: Check the documents executed to finance the home to determine eligibility for an MIP waiver.
Discharge of Obligations:
Pay Off to 78% LTV: If Your mortgage was taken out before June 3, 2013, and you diligently pay down your mortgage to 78% of the original house price, the MIP can be canceled.
Balance Up With Full Payments: Making scheduled additional payments helps attain this line quicker.
New FHA Loans (Late after June 3, 2013):
Indefinite MIP: If an FHA loan is processed after June 3, 2013, and a borrower makes a down payment of less than ten percent on MIP, that MIP will not be discharged for the entire loan period. The only alternative to such a scenario is settling the FHA loan and taking a normal loan.
Ultimate conclusion: “the best option for permanently eliminating fha mortgage insurance premium is to refinance the loan to a conventional loan, more so if the loan was disbursed after June 3 2013.” However, costs associated with refinancing should be evaluated against anticipated savings associated with just lifting MIP.
Do not hesitate to ask if you would like further information or assistance assessing your alternatives!