Loan agents answer the same questions all day long so we get to try many ways of explaining important loan topics to clients. And we often ask colleagues how they’re answering the same questions. This week, the question of “when does my FHA mortgage insurance go away?” was being kicked around and my fried and colleague Jeff Sokol offered the most succinct, conversational way of answering the question:
Here is the explanation of when the FHA mortgage insurance can be dropped:
Basically, not before 5 years, and when you pay it down to 78%, and appreciation doesn’t help you.
Cancellation of the FHA monthly mortgage insurance premium (MIP) is based on factors including the loan term, loan-to-value (LTV) ratio and regulations in place when the loan is closed.
For loans closed 01/01/2001 or later, MIP will be cancelled when the LTV reaches 78.00% as follows.
LOAN TERMS LONGER THAN 15 YEARS
– To be eligible, MIP must have been paid for at least 5 years.
LOAN TERMS 15 YEARS OR LESS
– There is not a minimum time period for which the MIP must have been paid. The 5 year requirement does not apply.
– If the LTV is 78.00% or less at loan closing it is exempt from monthly MIP
– This MIP termination provision only applies to loans where Up-front MIP (UFMIP) was paid at closing.
– Generally, loans closed before 01/01/2001 will not be eligible (MIP is collected as part of the monthly mortgage payment).
– FHA will determine when 78% LTV has been reached based on the lesser of the sales price or appraised value at loan origination. (Example: if the lesser of the sales price or appraised value was $100,000, when the loan amount reaches $78,000, FHA will no longer collect MIP).
– A loan that reaches 78% LTV sooner than projected due to prepayment may have MIP terminated (but not sooner than five years for loans with terms of more than 15 yrs) if mortgage payments have not been more than 30 days late in the previous 12 months.
– The borrower must submit a termination request to the lender and the lender must provide the borrower’s request and supporting documentation with respect to the mortgage payments during the last 12 months to FHA for such termination.
– Although the MIP is cancelled, the contract of mortgage insurance remains in force.