Mortgage Insurance Premium “MIP” is ordinarily applied to all FHA, USDA and Home Equity Conversion Mortgage “HECM or Reverse Mortgage” loans for the life of the loan. A similar mortgage insurance is applied to all Conventional loans with less than 20% down. Most individuals who select FHA have little down payment funds and will thus need to pay MIP every month. The monthly payment is based on the loan amount borrowed and down payment given. This represents an additional amount required to pay on your monthly payments. Homeowners thus have every motivation for removing MIP from FHA home loans, but new policies have altered how this works.
Recently, FHA made important alterations to MIP guidelines. These apply to loans with case numbers granted later than June 3, 2013. Previously, all FHA home loans had a set clause for removal of MIP when the principal reached a particular amount. This no longer applies. There are now varying policies based on the beginning loan amount and term of the loan. This article covers two common loan scenarios:
LOANS WITH MORE THAN 10% DOWN PAYMENT
For 30 year FHA home loans with a down payment of 10% or higher, eliminating MIP is possible based on 2 conditions. First, MIP must have been paid for a minimum of 11 years on that mortgage. Furthermore, the remaining balance must be 78% or lower than the original price or current appraised value.
MORTGAGES FOR MORE THAN 90% LOAN-TO-VALUE
For 30 year FHA home loans where the down payment is lower than 10% (which is the majority of FHA home loans), eliminating MIP is not possible. MIP is payable for the entire term of the mortgage no matter the remaining principal. The only way to remove PMI in this case is to refinance.
REMOVING MIP FROM FHA HOME LOANS
Removing MIP from FHA home loans is not as straight forward as it used to be. Most borrowers turn to FHA for the affordable down payment option of 3.5% of the sales price. It is helpful to understand that MIP cannot be removed from these loans. People with FHA case numbers dated prior to June 3, 2013 do not need to worry about this change. In addition, there are other exemptions such as streamline refinances of home loans endorsed prior to May 31, 2009 and Home Equity Conversion Mortgages. Call your loan officer for further information.