Eliminate FHA Mortgage Insurance

Get rid of FHA mortgage insurance

FHA financing is a great option for Phoenix area home-buyers.   It offers a low down payment along with a competitive mortgage rate.   FHA also requires that homeowners pay something called mortgage insurance.   Each FHA homeowner pays mortgage insurance in both of the following ways:

1.Up Front FHA Mortgage Insurance Premium  (UFMIP)

UFMIP is paid in the form of a one time/up front premium that is added to/financed into the home buyer’s FHA loan amount at closing

2. Monthly FHA Mortgage Insurance

Annual mortgage insurance is paid by an Arizona FHA home buyer inside their monthly payment (called monthly mortgage insurance herein based on the fact that it is paid monthly)

One of the first questions FHA buyers ask is “when can I get rid of my mortgage insurance?”  After-all, as of today the monthly mortgage insurance cost adds $260.42 to an FHA mortgage payment each month!  While it may be tax-deductible (depending on the homeowner’s income level) this is an expense not many FHA homeowners are fond of.  There is one main option to help an FHA homeowner get rid of FHA monthly mortgage insurance: Let’s dig deeper.

No More Getting Rid Of FHA Mortgage Insurance Naturally

Getting rid of FHA mortgage insurance naturally refers to what FHA homeowners used to be able to do after simply waiting a period of time.  As of the June 3, 2013, FHA no longer allows a homeowner to get rid of mortgage insurance naturally.  The only option is for an FHA homeowner to refinance out of their FHA loan into a Conventional loan – see below.

Refinancing Out of FHA Mortgage Insurance

While getting rid of mortgage insurance when staying with an FHA loan can prove to be challenging and long process, there is no rule that says one must stay in their FHA loan!  If an FHA homeowner is qualified and they have at least 6% equity they may be able to refinance out of their FHA loan into a Conventional mortgage and eliminate their monthly mortgage insurance payment.

Conventional mortgage insurance options are much more flexible than FHA mortgage insurance options.  Let’s break this down based on how much equity there is in a home.

6% to <20% equity:

If a homeowner has less than 20% equity but at least 6% equity they may qualify to utilize something called “financed mortgage insurance.”   This option allows a homeowner to eliminate monthly mortgage insurance however based on the fact that there is less than 20% equity in the home, mortgage insurance will still have to be paid in one form or another.  Conventional financing allows an AZ mortgage lender to add the cost of a mortgage insurance into the homeowners loan amount and eliminate the need to pay mortgage insurance monthly.  This option requires some more explaining especially if this is the first time you have ever heard of it.  Just know that you have options to eliminate monthly mortgage insurance payments even with less than 20% equity in your home.

> or =  to 20% equity:

This option is simple.  If a Phoenix area homeowner has 20% equity or more, mortgage insurance is not required in any form.  Refinancing into a conventional loan when there is 20% equity in a home eliminates mortgage insurance completely.

There are additional requirements that factor into refinancing an FHA loan to a conventional mortgage such as credit score, debt to income ratio and more.   Bottom line, Conventional home loans are a bit “tougher” to qualify for when compared to an FHA mortgage.  Regardless, if you think you may have 6% equity it is worth looking into your refinance options if you are interested in lowering your monthly mortgage payment.

Please let me know how my team and I can help you optimize your current home loan.

By Jeremy House
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  1. […] The general consensus among consumers is that Conventional monthly mortgage insurance payments disappear when their home has 20% natural equity.  Maybe, but no so fast!  Conventional Monthly mortgage insurance (referred to as “MI”) elimination is either up to a mortgage servicer or it is dictated by the HomeOwners Protection Act (HPA) – whichever comes first!  Learn more about eliminating FHA Mortgage Insurance […]

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