How to Remove FHA Mortgage Insurance | 2024

How to get rid of FHA mortgage insurance premiums

FHA mortgage insurance removal is a possibility for many homeowners, despite common misconceptions that the mortgage insurance premium (MIP) is a permanent part of FHA loans.

While some homeowners may experience natural FHA mortgage insurance removal when their insurance lapses, most will need to actively refinance to eliminate it.

Here’s everything you need to know about FHA MIP removal.

In this article (Skip to…)

• Remove PMI from an FHA loan
• Mortgage insurance removal
• Refinancing process
• Reduce FHA MIP payments
• FAQ

Can you remove PMI from an FHA loan?

Many homeowners often confuse MIP with private mortgage insurance (PMI) due to their similar functions in protecting lenders. However, MIP is specific to FHA loans and is required for all borrowers, regardless of their down payment, while PMI is associated with conventional loans and can typically be removed once the homeowner builds enough equity.

FHA PMI removal is technically impossible as FHA loans come with MIP. This distinction is crucial to understand, especially when considering options for reducing monthly payments.

How to remove FHA mortgage insurance

Fortunately, you have options for FHA mortgage insurance removal. Here’s what you need to know.

1. Determine your eligibility for FHA MIP Removal

There are two main ways to remove FHA mortgage insurance: automatic termination and refinancing.

Option 1: Automatic FHA mortgage insurance removal

The eligibility criteria for automatic MIP cancellation depend on when you took out your FHA loan and your original down payment amount.

If you received your FHA loan before June 3, 2013:

• You can remove MIP after 5 years if your original down payment was at least 10% of the purchase price.
• If your down payment was less than 10%, you’re generally stuck with MIP for the life of the loan, unless you refinance.

If you received your FHA loan on or after June 3, 2013:

• You can remove MIP after 11 years if your original down payment was at least 10% of the purchase price.
• If your down payment was less than 10%, you must pay MIP for the life of the loan, unless you refinance.

Option 2: Remove FHA MIP by refinancing into a conventional loan

If you don’t meet the criteria for automatic MIP cancellation, refinancing to a conventional loan is usually the best way to remove FHA mortgage insurance.

When you refinance, you take out a new loan to pay off your existing FHA loan. If you have sufficient equity (generally 20% or more), you can refinance into a conventional loan without any mortgage insurance required.

FHA MIP removal criteria

Regardless of which option you choose, to be eligible for FHA mortgage insurance removal, you must meet the following requirements:

1. Your loan must be in good standing, meaning you’ve made all mortgage payments on time
2. You must have a good payment history over the previous 12 months
3. You must not have any outstanding FHA loans or past-due federal debt
4. Your property must be your principal residence, not a vacation home or investment property

2. Evaluate your FHA mortgage insurance removal options

Once you’ve determined your eligibility for FHA MIP removal, evaluate your options and decide which path is right for you.

If you qualify for automatic MIP termination after 11 years, the decision is easy—you can simply wait for the mortgage insurance to be removed automatically. However, if you don’t meet the criteria for automatic MIP cancellation, you’ll need to weigh the pros and cons of refinancing.

Here are some factors to consider when deciding whether refinancing is a good option for FHA mortgage insurance removal:

• Equity: Do you have at least 20% equity in your home? If so, you may be able to refinance into a conventional loan with no mortgage insurance required.
• Credit score: Is your credit score high enough to qualify for a conventional refinance? Most mortgage lenders require a score of at least 620, but a higher score can help you secure a lower interest rate.
• Debt-to-income ratio: Is your debt-to-income ratio below 50%? This is another key factor lenders consider when evaluating your refinance application.
• Interest rates: Are current mortgage rates lower than the rate on your FHA loan? If so, refinancing could help you save money on interest in addition to removing mortgage insurance.
• Closing costs: Can you afford the closing costs associated with refinancing? These typically amount to 2-6% of your loan amount, so it’s important to factor them into your decision.

If you have sufficient home equity, a strong credit score, and a low debt-to-income ratio, and current interest rates are favorable, refinancing to a conventional loan could be a smart way to remove your FHA mortgage insurance and save money over the long term.

On the other hand, if you don’t meet the equity or credit requirements for a conventional refinance, or if interest rates have risen significantly since you took out your FHA loan, refinancing may not make sense for you.

“After sufficient equity has built up on your property, refinancing from an FHA or conventional loan to a new conventional loan would eliminate MIP or PMI payments. This is possible as long as your LTV ratio is at 80% or less.”

—Wendy Stockwell, VP of operations support and product development at Embrace Home Loans

Ultimately, the best way to evaluate your options is to crunch the numbers and see how much you could save by refinancing versus sticking with your current FHA loan and mortgage insurance. You can use an online refinance calculator to get a rough idea of your potential savings, but for a more accurate assessment, it’s a good idea to consult with a real estate or mortgage professional who can review your specific situation and provide personalized advice.

3. Contact your lender to start the FHA MIP removal process

If you think you’re eligible for FHA mortgage insurance removal, it’s wise to contact your loan servicer. Your servicer is the company that manages your loan and accepts your mortgage payments. You can find their contact information on your monthly mortgage statement or by searching the Mortgage Electronic Registration Systems (MERS) database.

When you call your servicer, let them know you’re interested in removing FHA mortgage insurance. They’ll be able to review your loan details and eligibility, and advise you on next steps.

If you’re eligible for automatic MIP termination after 11 years, your servicer should take care of the process for you. However, it’s a good idea to follow up with them a few months before your loan’s 11-year anniversary to ensure the cancellation is on track.

If you need to refinance to remove MIP, your servicer can help you explore your options and start the application process.

Refinancing your FHA loan to remove mortgage insurance

If you decide to refinance to get rid of FHA mortgage insurance, here’s what you can expect from the process.

Benefits of refinancing to remove FHA MIP

Refinancing from an FHA loan to a conventional mortgage can offer several advantages, such as:

• FHA mortgage insurance removal: With a conventional loan, you can avoid mortgage insurance altogether if you have at least 20% equity.
• Potentially lowering your interest rate: If mortgage rates have dropped since you took out your FHA loan, refinancing could secure you a lower rate and monthly payment.
• Tapping your home equity: If you have sufficient equity, you could opt for a cash-out refinance to access funds for home improvements, debt consolidation, or other personal finance goals.

Qualifying for a conventional refinance loan

To refinance into a conventional mortgage, you’ll need to meet the lender’s qualification criteria. Each mortgage lender has their own requirements, but in general, you’ll need:

• A credit score of at least 620
• A debt-to-income ratio below 50%
• Stable income and employment
• At least 20% equity in your home

If you don’t quite meet these criteria, you may still have options. For example, if you have less than 20% equity, you might qualify for a conventional loan with lender-paid mortgage insurance (LPMI). With LPMI, your lender pays for mortgage insurance on your behalf in exchange for a slightly higher interest rate.

How to refinance your FHA loan to remove mortgage insurance

If you’re ready for FHA mortgage insurance removal, here are the steps you’ll typically go through when applying for refinancing:

1. Shop around and compare offers from multiple lenders. Look at interest rates, closing costs, and qualification requirements to find the best deal.
2. Choose a lender and submit your mortgage refinance application. You’ll need to provide documentation of your income, assets, and debts.
3. Get a new appraisal on your property. The lender will order a home appraisal to determine your home’s current property value and ensure you have sufficient equity to refinance.
4. Go through underwriting. The mortgage lender will verify your financial and property information and make sure you meet their qualification criteria.
5. Close on your new loan. If approved, you’ll sign the final paperwork and pay any required closing costs.
6. Start making payments on your new conventional loan, free of FHA mortgage insurance premiums!

Refinancing to remove MIP payments can take anywhere from a few weeks to a few months, depending on your financial situation and lender efficiency.

Alternatives to FHA mortgage insurance removal

Not everyone is eligible for a conventional mortgage refinance, and that’s ok. Even if complete FHA mortgage insurance removal isn’t possible for you, there may still be options available to reduce your FHA mortgage insurance costs.

FHA Streamline Refinance to reduce MIP costs

An FHA Streamline Refinance allows you to refinance your existing FHA loan to a lower interest rate, without a new appraisal or income verification. While this won’t eliminate your MIP, it could lower your overall mortgage payment.

To qualify for an FHA Streamline, you must have made at least 6 months of on-time payments on your current FHA loan. You also need to demonstrate that the refinance will result in a “net tangible benefit,” such as a lower payment or shorter loan term.

FHA MIP refund for recent borrowers

If you opened your FHA loan relatively recently, you might be eligible for an MIP refund. When you pay your Upfront Mortgage Insurance Premium (UFMIP) at closing, the FHA places that money in an escrow account for a short period. If you refinance or sell your home within the first 3 years of your loan term, you may be able to get a partial refund of your UFMIP.

The amount of your potential refund depends on how far into your loan term you are when you refinance or sell. Here’s a breakdown of the refund percentages:

• If you refinance or sell within the first 12 months: 80% refund
• If you refinance or sell between months 13-24: 60% refund
• If you refinance or sell between months 25-36: 40% refund

Example: If you paid a $2,000 UFMIP at closing and refinance your loan after 18 months, you could be eligible for a $1,200 refund (60% of $2,000).

It’s important to note that this refund only applies to your upfront MIP, not your annual mortgage insurance premiums. Additionally, you must refinance or sell your home within the first 3 years of your loan term to be eligible for a refund.

If you think you may qualify for an MIP refund, contact your loan servicer or the HUD Resource Center for instructions on how to request one.

How long does FHA MIP last?

Most current FHA loans fall into two categories. Those with case numbers issued before June 3, 2013, and applications made on or after that date. Your FHA MIP removal will depend on this deadline because that’s when FHA rules changed.

FHA loans for which you completed an application on or after June 3, 2013:

Modern FHA loans have simplified their MIP schedule. The size of your down payment determines whether MIP will expire.

FHA loans for which you completed an application before June 3, 2013:

These older FHA loans use a more elaborate MIP schedule.

FAQ: FHA mortgage insurance removal

Bottom line on FHA mortgage insurance removal

Now that you understand that when most people search for FHA PMI removal, they are really meaning FHA MIP removal, it’s important to explore your options.

And the best way to achieve FHA mortgage insurance removal is to refinance into a conventional loan or a government-backed loan, such as a VA loan or a USDA loan.

So contact a mortgage lender to get a refinance rate quote. Mortgage quotes come with an eligibility check and potentially an estimate of the home’s appraised value.

Get a quote and get started canceling your FHA MIP today.