When you review your mortgage statement every month you are reminded of something called mortgage insurance. For a FHA loan it is called MIP, Mortgage Insurance Premium. Removing MIP on a FHA loan is a different animal than removing it from a conventional loan. Market appreciation does not enter into the equation at all. To see what option are available, continue reading.
Is it possible to remove mortgage insurance on a FHA loan?
To start out, it is very important to determine when the FHA loan was issued. Was it prior to June 2013 or after. If it was after June 3, 2013, and the down payment was 10% or more the mortgage insurance will drop off after 11 years. However, down assume this happens automatically even though it should. If the down payment is less than 10% which is very likely since one of the benefits of a FHA loan is the 3.5% down payment, the mortgage insurance premium will be attached for the life of the loan.
If the loan was initiated prior to June 2013, then MIP removal is tied more closely to reaching the 22% equity threshold. Removing the MIP can be removed after 5 years if the term of the loan is 20, 25, or 30 years. For a 15 year loan, there is no waiting period. Since this is almost 9 years ago, a borrower should watch the equity on their loan.
The most likely method to removing MIP on a FHA loan is through refinancing. In this case, there are many questions to consider. For example, how many years do you anticipate owning the home. Is your market equity such that you’ll have enough to avoid PMI on a conventional loan when you do refinancing? Are interest rates better now than when you took out the initial mortgage. Do you know the costs to refinance? How long will it take to recoup the closing costs when you do refinance? To thoroughly understand if refinancing is a goo strategy to eliminate mortgage insurance, consult an experience loan officer to help you make sure it’s the right thing to do.
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