Removing the Annual Mortgage Insurance Premium (MIP) from your FHA mortgage
When it comes to FHA loans and the removal of your Annual Mortgage Insurance Premium, we are about to enter the Twilight Zone. If you have an FHA mortgage that has a case number date (a number you get on an FHA mortgage a bit before the mortgage funds) on or after June 3, 2013, you are not eligible to have your annual MIP cancelled, regardless of the loan-to-value.
On FHA mortgages with a case number date before June 3, 2013, you can have you annual MIP removed, but only if the loan amount has been paid down enough to achieve a 78%, or lower, loan to value. In other words, FHA guidelines do not allow you to pay for an appraisal to demonstrate your home has appreciated to the point that your loan-to-value has dropped to 78%, or below.
Because mortgage insurance on your FHA mortgage is generally rather expensive, you may want to explore refinancing into a conventional mortgage. Even if your new conventional mortgage requires private mortgage insurance (PMI), the PMI premium will likely be much lower than your FHA monthly MIP and you will be able to remove the PMI later and eliminate the monthly expense.
Automatic removal of the Annual Mortgage Insurance Premium (MIP) on your FHA mortgage. Much like Private Mortgage Insurance above, the automatic removal of FHA MIP is triggered by a scheduled event, the point at which your outstanding principal is scheduled to fall below 78% of the value of the original purchase value of the property. On 30 year loans, with a 3.5% down payment that happens at about the 11 year mark. On 15 year mortgages, the balance amortizes down to the 78% level in under 3 years. Remember, however, this applies to FHA loans with case numbers secured before June 3, 2013. If your FHA case number was assigned after that date you are not eligible to have your monthly MIP removed unless you refinance and pay off the FHA loan.
Getting a Refund on your Upfront Mortgage Insurance Premium (MIP)
In the section above, I welcomed you to the Twilight Zone. Well, for those old enough to remember Rod Serling’s chilling intros, let me say that when it comes to understanding how, when and why you do, or don’t, receive a partial refund on that very hefty Upfront Mortgage Insurance Premium –
“You’re traveling through another dimension — a dimension not only of sight and sound but of mind. A journey into a wondrous land whose boundaries are that of imagination. That’s a signpost up ahead: your next stop: the Twilight Zone!”
Well here it is, the details in no particular order:
- Refunds on Upfront MIP are time-based. Your refund, if you are entitled to one is calculated based on the number of months the policy was in place. The earlier the FHA mortgage is paid off, the greater the percentage of the premium paid is returned to you.
- According to the FHA website, the amount of refund you receive is determined by the FHA Commissioner – now that probably has you feeling all kinds of comfortable. From experience I can tell you it is not entirely haphazard; there is a formula involved.
- To qualify for a refund, you must pay off the loan in full. An FHA loan “paid off” through the use of an FHA to FHA refinancing product does not qualify.
- I am going to keep it simple as to which FHA mortgages even qualify for an MIP refund. If your FHA mortgage is more than five years old, you almost certainly are not going to qualify for an MIP refund. For all FHA mortgages funded after January 1, 2001, borrowers are not entitled to a refund after five years.
- If you are entitled to a refund, FHA says you should receive an application for a refund within 45 days……….and I believe everything FHA says. NOT! If you are paying off your FHA loan it is probably through a refinance, or because you are purchasing a new property. So, what you want to do is enlist the help of the loan officer who is helping you with your new loan, to secure for you an application for an MIP refund.