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How to remove FHA mortgage insurance

Unlike conventional mortgages that sometimes require the borrower to pay private mortgage insurance (if less than 20% is given as a down payment), FHA loans always require a mortgage insurance premium, both as an upfront fee paid at closing and as a monthly installment payment.

Depending on the FHA loan application date, there are different options for removing FHA monthly mortgage insurance, which will be discussed in this article.
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Read-on to learn more about FHA mortgage insurance removal and how to get rid of MIP on an FHA loan.

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What is an FHA loan?

Federal Housing Administration (FHA) loans are in a category of mortgages called government-insured mortgage loans, also known as government-backed mortgage loans.
FHA home loans were created to help people, especially first-time buyers and seniors, become homeowners. Homeownership is more accessible with an FHA home loan because government-backed mortgage loans have more relaxed qualifying requirements than conventional mortgage loans that are provided by private lenders.
FHA mortgages are available from FHA-approved lenders include credit unions, banks, and online lenders, which also offer conventional and other government-backed loans.
Learn more about the difference between FHA and conventional mortgage loans.

Do FHA loans require mortgage insurance?

Yes, all FHA loans require mortgage insurance, which is called the mortgage insurance premium (MIP).
Conventional mortgages may require borrowers to pay private mortgage insurance if they put less than 20% down on a home purchase.
FHA loans always require a mortgage insurance premium in the form of an upfront mortgage insurance premium (UMIP) paid at closing and an ongoing monthly payment.
Learn more about the difference between PMI vs. MIP.

How do mortgage insurance premiums (MIP) work?

This FHA-specific premium, currently at 1.75% of the mortgage amount, can be rolled into the mortgage amount. It is charged on all FHA new home purchases and FHA refinance transactions.
Up-front mortgage insurance premium (UMIP). This premium is required for all FHA loans and is paid at closing.
Monthly mortgage insurance premium. In addition to the UMIP, FHA borrowers will pay a monthly MIP which is based on their calculated annual MIP payment.

How long do mortgage insurance premiums last?

Removing FHA monthly mortgage insurance may be possible based on your application date and your home’s loan-to-value (LTV) ratio. If the (monthly) mortgage insurance premiums are paid up for an FHA case before schedule (i.e., accelerated payments were made and the unpaid principal balance is 78% or less), then you may request FHA mortgage insurance removal from your lender.
The Federal Housing Administration (FHA), which is part of the U.S. Department of Housing and Urban Development (HUD), insures FHA loans, and has specific requirements regarding FHA MIP removal.
Loans made on or after June 3, 2013. With an FHA case number assignment date on or after June 3, 2013, the FHA insurance can be terminated by the servicer or holder if the mortgage is paid in full before the maturity date.

Loans made before June 3, 2013. Loan with case numbers that have been assigned after June 3, 2013, are not eligible for cancellation.

How to remove MIP from an FHA loan

The FHA provides several ways to remove MIP:
Wait for MIP to expire. If you made a down payment of at least 10% on your home purchase, then your FHA MIP will expire after 11 years.
Refinance into a conventional loan. Refinancing into any type of conventional loan will remove FHA MIP. However, based on the property’s loan –to-value ratio you could be required by the lender to pay private mortgage insurance (PMI).
Automatic removal. MIP can be removed once the final MIP date has been reached.

Is it possible to reduce mortgage insurance premiums?

For homeowners who don’t qualify for FHA mortgage insurance removal or those who do not qualify for a conventional loan refinance, it may be possible to refinance your FHA mortgage into a “Streamline Refinance.”
According to HUD, streamline refinance refers to the refinance of an existing FHA-insured mortgage requiring limited borrower credit documentation and underwriting. Streamline refinances are available under credit qualifying and non-credit qualifying options. "Streamline refinance" refers only to the amount of documentation and underwriting that the lender must perform and does not mean that there are no costs involved in the transaction. The basic requirements of a streamline refinance are:
  1. The mortgage to be refinanced must already be FHA insured.
  2. The mortgage to be refinanced must be current (not delinquent).
  3. The refinance results in a net tangible benefit to the borrower. The definition of net tangible benefit varies based on the type of loan being refinanced, and the interest rate and/or term of the new loan.
  4. Cash in excess of $500 may not be taken out on mortgages refinanced using the streamline refinance process.
  5. Investment Properties are only eligible for FHA insurance if the borrower is a HUD-approved Nonprofit Borrower, or a state and local government agency, or an Instrumentality of Government.

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For over 60 years CU SoCal has been providing financial services, including mortgages, Home Equity Loans, HELOCs, car loans, personal loans, credit cards, and other banking products, to those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County.
Please give us a call today at 866.287.6225 today to schedule a no-obligation loan consultation with a CU SoCal Member Services specialist.

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