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How to Cancel FHA Mortgage Insurance 3 Ways to Get Rid of MIP

This article suggests three ideas for how to cancel FHA mortgage insurance to lower your monthly mortgage payment.

April 13, 2022
April 13, 2022
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FHA loans are great options for homebuyers: Low down payment requirement, 580 credit score minimum, and you can use them anywhere in the country.

But there is one feature that may seem like a catch: FHA mortgage insurance.

Although the upfront and annual FHA mortgage insurance premiums (MIP) may seem like frustrating extra expenses, they’re actually a benefit to homebuyers.

MIP offsets the FHA’s risk in backing low down payment loans. And low down payment loans often make the difference for homebuyers who can afford a monthly mortgage payment but struggle to save up a large down payment.

Plus, you don’t have to pay FHA mortgage insurance premiums forever. We’ll tell you how to cancel FHA mortgage insurance and save money on your loan.

What's in this Article?

               How to cancel FHA mortgage insurance: Three ways to do it      




               1. Refinance to a conventional loan      




               2. Refinance into a VA loan      




               3. Wait for FHA mortgage insurance to expire      




               Frequently asked questions      








How to cancel FHA mortgage insurance: Three ways to do it

All FHA borrowers pay upfront and annual mortgage insurance premiums. The question is for how long – and how much.

Every FHA loan has an upfront MIP of 1.75% of your loan amount, which is typically paid at closing.

This part is not refundable or cancelable, unless you get an FHA streamline refinance within three years of the original loan. In that case, you may get a portion of the upfront MIP applied to the MIP requirement on the refinance.

Annual premiums can range from 0.45% to 1.05% of the loan amount per year, paid in 1/12 installments each month along with your mortgage payment. The exact amount depends on your loan balance and down payment.

Most FHA borrowers pay an annual MIP fee of 0.85%.

The good news is that there are a few ways you may be able to get rid of annual MIP.

1. Refinance to a conventional loan

You may be able to refinance your FHA loan to a conventional loan once you build up 20% equity in your home.

Conventional loans require monthly private mortgage insurance (PMI) when borrowers put down less than 20%. By refinancing to a conventional loan once you have 20% equity, you can eliminate FHA MIP and you won’t be subject to PMI.

Or, you could refinance into a conventional loan with PMI now. Why would you do this?

Related reading: FHA MIP Refund Chart: See How Much You Could Save On an FHA Refinance

If you have great credit, conventional PMI might actually be cheaper than your FHA mortgage insurance. Additionally, conventional PMI automatically falls off when you reach about 22% equity in the home.

But with rising rates, there’s a good chance you won’t save money by refinancing into a conventional loan with PMI. Still, it’s a good option to explore. Have your lender run the numbers to see if it makes sense.

Keep in mind that you will pay closing costs on a refinance loan, which are typically 2-5% of the loan amount including things like an appraisal, new title insurance, and lender fees.

But the fees could be worth it if you significantly save money by eliminating FHA’s mortgage insurance.

2. Refinance into a VA loan

You may be able to refinance into a VA loan, which comes with no ongoing mortgage insurance.

This method works if you have eligible current or former U.S. military service history.

VA loan refinances don’t require equity in the home. That means you don’t have to have 20% equity in the home to remove your FHA mortgage insurance like you would with a conventional loan.

If you’re a veteran or active duty servicemember, you may have been given an FHA loan when you last purchased a home or refinanced because the lender didn’t know about VA loans or you didn’t know to ask for one.

But if you’re eligible, a VA loan is a great tool to reduce your costs as a homeowner.

3. Wait for FHA mortgage insurance to expire (if you put down 10% or more)

FHA loans are an attractive option because they let you put down as little as 3.5%. But if you put down less than 10%, you will owe MIP for the life of the loan.

If you put down 10% or more when you purchased the home, the MIP requirement falls off automatically after 11 years.

This method doesn’t apply to most, since the majority of FHA buyers make the minimum down payment. But it’s worth considering if you did make a larger down payment, especially if your mortgage rate is in the 2s or 3s.

Refinancing remove mortgage insurance now forces you to take on today’s rates, which are currently soaring toward 5%. It could be worth paying FHA mortgage insurance for 11 years to keep your ultra-low rate acquired during the pandemic.

If you didn’t put 10% or more down, you will have to consider one of the above options.

Learn more: FHA Loan Mortgage Insurance: How Much Will You Pay?

How to cancel FHA mortgage insurance FAQs

How do I get rid of FHA mortgage insurance? If you put 10% down or more on an FHA loan, your mortgage insurance will be removed after 11 years. The annual mortgage insurance premium is permanently on the loan if you put less than 10% down. But, you could get rid of it by refinancing your FHA loan to a conventional loan after you build up 20% equity or a VA loan even if you don’t have any equity in the home yet.

When can I remove FHA PMI? Technically, FHA loans don’t have private mortgage insurance or PMI, they have MIP (but it’s basically the same thing).
FHA MIP is usually required for as long as you have the loan. But you can refinance out of FHA into a conventional loan, which doesn’t require mortgage insurance once you hit 20% equity.

Is FHA mortgage insurance permanent? FHA mortgage insurance is permanently on the loan if you put less than 10% down when you bought the home. However, refinancing into another loan type is a way to get rid of the insurance when you have enough equity to qualify for a conventional loan.

Can you avoid mortgage insurance on FHA? There’s no way to avoid a mortgage with an FHA loan — it’s a required upfront and monthly premium. However, the monthly premium may be removed after 11 years, provided you made a down payment of at least 10% (which is hardly anyone). If you put less than 10% down (most buyers), you could refinance to a conventional loan to remove MIP after you build up 20% equity in the home.

FHA mortgage insurance premiums are required — but not indefinite

If you take out an FHA loan, there’s no way to escape the upfront and monthly insurance altogether.

These fees and premiums for government-backed loans are in place to protect lenders because they assume more risk when you bring less money to the table.

With a larger down payment, you may be able to say goodbye to annual FHA loan mortgage insurance after a little more than a decade passes. If you put less money down, you can explore refinancing after hitting the 20% equity mark.

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