Removal Of MIP From FHA Loans
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Do you have an FHA loan and are interested in removal of MIP from FHA loans? MIP is the acronym for mortgage insurance premium, which is required when you get an FHA loan from a mortgage lender. All FHA loans require MIP as opposed to PMI (the acronym for private mortgage insurance), which is generally cheaper than private mortgage insurance.
If you closed your mortgage loan before January 1, 2001, you have two options to remove MIP from your FHA loan: 1) pay the loan off completely or 2) get a new refinanced loan. As you probably know, you can pay your MIP up front at the time of closing or on a monthly basis along with your mortgage payment.
According to FHA rules, if you closed your mortgage after January 1, 2001, removal of MIP from FHA loans where the premium was paid upfront, can occur once you pay 78% of the loan. There are a few variables to this rule that include: 1) the price or value of the purchased home and 2) the principle payments applied towards the mortgage loan.
Additionally, if your mortgage closed after January 1, 2001 and you are making monthly MIP payments, you cannot get a removal of MIP from your FHA loan. However, what you can do in this situation is to consider refinancing your FHA loan to a conventional loan where MIP is not needed. This option only makes sense if you have accrued enough equity in your home where you would qualify for a conventional loan without the need for PMI.
If any of the following conditions exist removal of MIP from FHA loans can occur.
- Your remaining mortgage term is longer than 15 years. You have paid MIP for at least 5 years and your loan to appraised home value ratio is at least 78%.
- Your remaining mortgage term is less than 15 years and your loan to appraised home value ratio is 90% or more. Length of paid MIP is not important in this situation.
The FHA decides when you have reached the benchmark of the needed loan to appraised home value ratio. This decision is based on the sale price at the origination period and the current appraised market value.
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