If you’re looking into loans for buying a home, one option you may have considered is an FHA loan. FHA loans are mortgages backed by the Federal Housing Association. These loans usually have relaxed requirements, making it easier to qualify. However, borrowers have to pay an FHA mortgage insurance premium, which comes at an additional cost.
Can FHA mortgage insurance be canceled? Or do you have to pay it for the entire duration of your loan? Here’s what you need to know.
What Is FHA Mortgage Insurance?
FHA mortgage insurance, or an FHA Mortgage Insurance Premium, is a type of insurance that protects lenders who issue FHA loans. If you default on your loan and fail to pay your mortgage, the insurance provides financial protection for the lender. Borrowers pay for this insurance in the form of two premiums – one that’s due upfront and one that’s paid annually each year.
How Much Does It Cost?
The upfront fee for your FHA mortgage insurance will cost 1.75% of your loan amount. This cost can be either included in your closing costs or rolled into your loan.
In addition to the upfront fee, you’ll also pay an annual premium. This fee is paid on a monthly basis along with your mortgage. The amount ranges from 0.45% to 1.05% of the loan amount, per year.
Can I Get Rid of FHA Mortgage Insurance?
Whether or not you can get rid of FHA mortgage insurance depends on a couple of different factors. This includes when you obtained your loan, your loan term length, and how much you paid for a down payment.
If your FHA loan has a case number assignment date before June 3, 2013, you may be able to have your insurance canceled once your unpaid principal balance reaches 78%. If you have a loan term longer than 15 years, then a waiting period of five years minimum may apply. For more information on this topic, we recommend viewing the information on the HUD website regarding the Discontinuation of Monthly Mortgage Insurance Premium Payments.
If your case number was assigned after June 3, 2013, the situation is different. Whether or not you can get rid of your MIP depends on how much money you put down. If you put down more than 10%, you may be able to have your MIP removed. If you put down less than 10% then you may have to pay FHA mortgage insurance for the entire duration of your loan.
Another option is refinancing your FHA loan to a conventional mortgage. In order to do this, you will need to meet certain eligibility requirements.
FHA mortgage insurance is a complicated topic. If you have questions about MIP or FHA loans in general, please do not hesitate to contact our office.