How Do We Get Rid of the FHA Mortgage Insurance Premium?

Question: I bought a home with FHA financing. We have a monthly insurance premium (MIP) with each payment. How do we get rid of this cost?

Answer: When you bought your home you purchased with little money up front, perhaps 3.5 percent down. This means a lender put up as much as 96.5 percent of the purchase price. This is a high-risk situation for lenders because they greatly prefer 20 percent down.

With FHA, what you have is not a loan from the government but a form of insurance for the lender. You can borrow with little down, but you have to pay for the insurance coverage — the mortgage insurance premium or MIP.

You may or may not be able to end the MIP. Here are three points.

First, if you have sufficient equity you may be able to refinance without any form of mortgage insurance. Generally, you must have equity equal to 20 percent of the property or more. Speak with lenders for specifics.

Second, if your FHA loan has a case number assigned after June 3, 2013, new HUD policies state that mortgage insurance must remain in effect for the life of the loan if you purchased with less than 10 percent down. If you bought with more than 10 percent down the insurance must remain in effect for at least 11 years.

Third, for an FHA mortgage closed on or after January 1, 2001 or has a case number issued before June 3, 2013 then the opportunity to cancel your mortgage insurance premium remains in place.

HUD states as follows:

“Effective for all loans closed on or after January 1, 2001, FHA’s annual mortgage insurance premium will automatically be canceled-once the unpaid principal balance, excluding the upfront MIP, reaches 78 percent of the lower of the initial sales price or appraised value based on the initial amortization schedule and pursuant to instructions contained in ML 00-38. Although the annual mortgage insurance premium will be canceled as described, the contract of insurance will remain in force for the loan’s full term. This mortgage insurance premium cancellation provision applies only to loans insured under the Mutual Mortgage Insurance (MMI) fund. The MMI fund does not include mortgages on condominiums or Section 203(k) rehabilitation loans, among others.”

In other words, if you had a $100,000 FHA mortgage originated between January 1, 2001 and before June 3, 2013 then to discontinue the payment of monthly mortgage insurance premiums the balance must be less than $78,000. Speak with lenders for specifics.

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12 Comments on "How Do We Get Rid of the FHA Mortgage Insurance Premium?"

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  1. If the lending institution and the lender lose you will also. The better option is have a roof over your head and good credit.

    Also, houses do lose value. As of the third quarter of 2015 US home prices, on average, were 3.7 percent lower than in 2007 —


  2. Doug Wolf says:

    In response to John T’s post on Nov 18 2014 – If you default on a home mortgage loan the bank repossess the asset (the house!) thus covering the note. Sure there are costs associated with the repo process but no where near the cost of the mortgage insurance premiums paid over time! If the lending institution (bank) was dumb enough to loan more $ than the house is worth tough nookie for them – cry me a river… No more bail outs for big banks either.. The analogy of car insurance is short sighted. Cars depreciate over time – houses typically appreciate. Mortgage insurance is an industry created by a bunch of white collar paper pushers who do nothing to increase GPD of our nation. It should be abolished…

  3. John MissesThePoint says:

    John Tetreault, you seem to miss the point. Tim is correct, because you fail to see that in the case of a motor vehicle, you only insure the motor vehicle, you do not insure the car note (car payment). But in the case of a house, not only do you insure the house with your house insurance, you also insure the house note (mortgage). Got it?

  4. Jay jay lang says:

    FHA is a government loan??? I thought OBAMA is going to help the home buyer and home owners out there to make a affordable monthy payments??? What’s up with MIP???
    This is absolutely a big ripped off for the buyer and home owners… I wish the government will do something about it ASAP!!!

  5. John Tetreault says:

    Ultimately, if you don’t like paying for mortgage insurance (which is required by FannieMae and FreddieMac if you’re over 80% of value (again, its not the banks that mandate it just to screw you over)… Then suggest you find a way to get the 20% down or continue to rent….

  6. John Tetreault says:

    Clearly nobody commenting understands how insurance works… You pay insurance premiums to the insurer… not the bank.. its not a bank fee… In the case of FHA, the fee goes to HUD, in the case of private mortgage insurance, the fee goes to some company like MGIC, Essent, Radian, UGI, etc. Second, its all about spreading risk…. You pay your loan, and pay your premiums, and see it as money lost… but what if you default on your loan after 18 months? do you really think the 18 months of premiums you paid are enough to cover the loss? Of course not…. the premiums that OTHER people who don’t default pay go to cover the loss of your default. That’s how insurance works… You think nothing of how much you pay in car insurance over your lifetime, even though you may never file a claim…. same thing.

  7. Carol Wise says:

    I bought my home for 219,000 and the balance is now 196,000. How much more do I need to pay down on the principal before I can cancel my MIP?

  8. howardsprague says:

    Another sad aspect is they give you no credit for increasing the value of your home. Your actual LTV could drop significantly but it gives you no additional progress toward eliminating the premium. They assume value of home will never increase, no matter how strong the local market or how great the improvements.

  9. Brian says:

    Disagree with Crystal: Lame article. Tell me something relavant!!!

    Agree with Tim: Biggest SCAM ever. Need to refinance through conventional loan, asap! Insurance is the biggest scam. AIG=messed up world economy.

  10. Suzie says:

    I agree with Crystal. I thought I could pay down my principle and cancel it. Can I refinance to a different loan and get rid of my MIP?

  11. Tim says:

    I understand that banks take a risk lending you money. But to say if you don’t put 20% down is just stupid. You’re taking out a loan because you lack the money to pay in cash. So they invent mortgage insurance, and over charge you for it too. On a $179,000.00 loan I just got, with 3.5% down. (That was part of the profit I got sailing my house). I have to pay $168 per month for mortgage insurance, plus pay an upfront payment of $3,800.00, of which I can’t’ pay in cash, but have to roll it into my mortgage making it take longer to reach the 78% to get rid of the Insurance. My credit score is 802, I have no debt, but I still have to suffer and pay those outrageous fee just to have a mortgage, on top of the interest rates. Home owners insurance is costing approximately $800.00 per year for total replacement. Mortgage insurance is costing me $2,016.00 per year, for at least 20 years plus the upfront payment for a total of $44,120.00. OMG! The 20% down payment on my home would have been $35,800. This is the biggest scam I have ever seen. Where does all this money go? It seems that I could have financed my down payment and still come out ahead, since this mortgage insurance raises my monthly payment by $168.00 per month. But I will never get a dime of that mortgage insurance back.

  12. Crystal says:

    Thank you for posting this information. I am a little disappointed that I can not cancel for 5 years though. When we built our house and took out the loan my LTV was already at 83%. I was hoping by paying extra monthly I would quickly pay down enough to get rid of the MIP and have more money go to principal, however it looks like that is not the case. Thanks again for your great article.

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