When Can I Remove MIP from My FHA Loan?

When you can remove MIP from an FHA loan depends on when you took out the loan, how consistent you’ve been with your monthly payments, and how much equity you have built up in your home.

Mortgage Insurance Premium (MIP) is a requirement for all FHA loans. It is designed to protect lenders against default. Conventional loans also have insurance called private mortgage insurance (PMI), but it is different and has its own rules. MIP on FHA loans is more complex and can be a significant ongoing cost.

Understanding when you can remove MIP and how to do it is crucial for managing your mortgage and reducing monthly expenses.

Types of MIP

FHA loans have two types of MIP: Upfront MIP (UFMIP), typically 1.75% of the loan amount, and an annual MIP charged as a monthly fee. The upfront MIP is due when you close on your loan and is not dependent on your down payment amount or your credit score. The annual MIP is based on your loan-to-value (LTV) ratio, the amount of your loan, and how long your loan term is (15 years, 30 years etc.).

How to remove MIP from your FHA loan

Whether or not you’re eligible for removing MIP from your FHA loan will depend on the date you took out your loan, the amount of equity you have built up in your home, your loan term, and how consistent you have been with your monthly payments.

FHA Loans Originated Before June 3, 2013

15-Year Fixed-Rate Loans: MIP can be removed if you have made all of your monthly payments on time and your mortgage has an LTV of 78% or less.
30-Year Fixed-Rate Loans: MIP can be removed after 5 years if your LTV is 78% or less and you’ve made all of your monthly payments on time.

Loans Originated on or After June 3, 2013

You’ve made all of your monthly mortgage payments on time for the last 11 years.
You put down a minimum down payment of 10% or more when you bought the home.

Refinancing to remove MIP

If you are not eligible for MIP removal or you don’t want to wait until you may become eligible, you can remove MIP by refinancing from an FHA loan to a Conventional loan. In order to refinance to a Conventional loan, you’ll need a minimum credit score of 620 and a minimum amount of equity in your home, which varies.

Factors of refinancing to consider

Closing costs: Refinancing involves new closing costs that include fees like appraisal and lender fees.
Interest rates: Interest rates fluctuate on a daily basis based on a variety of factors. This means that when you refinance, you will be paying a new interest rate, either higher or lower than what you are currently paying.
Break-even point: Calculate how long it will take for the savings of refinancing to offset what you’re paying to refinance.
Credit score: Conventional loans typically require a minimum credit score of 620.
Employment and income: Stable employment and sufficient income are required for approval.

Steps of refinancing to remove your MIP

Check your LTV ratio: Calculate your current LTV by dividing the remaining loan balance by your home's value.
Improve your credit score: Pay bills on time and reduce credit card balances.
Gather documentation: Prepare proof of income, employment verification, and bank statements.
Apply for the refinance: Submit your application to the chosen lender.
Complete the appraisal: A new appraisal may be required to verify the home's value.
Review the terms: Ensure the new terms are beneficial.
Close the loan: Sign documents and pay closing costs.