Mortgage insurance is normally included in home loans with less than a 20% downpayment. Most homeowners who use FHA have little down payment funds and will therefore need to pay mortgage insurance every month. The amount is calculated using the beginning balance of the loan and might represent a big percentage of the monthly payment. People thus will realize savings when removing mortgage insurance from FHA loans, but updated guidelines have changed how this occurs.
Mortgage Insurance Guidelines
In 2013, FHA changed mortgage insurance calculations. These relate to home loans with case numbers pulled later than June 3, 2013. Previously, all FHA loans had a standard clause for removal of mortgage insurance when the amount owed reached a specific percentage. This is no longer true. There are now different sets of rules depending on several factors. This article details 2 common scenarios.
Loans Less Than 90% Loan-to-value
For 30 year FHA loans with a down payment of 10% or more, removing mortgage insurance is an option based on 2 conditions. First, mortgage insurance must be paid for a minimum of 11 years on that mortgage. Also, the amount owed must be 78% or less than the original price or current market value.
Loans for Greater than 90% LTV
For 30 year FHA loans where the down payment is lower than 10% (such as the 3.5% minimum), eliminating mortgage insurance is not permitted. Mortgage insurance remains in place for the entire life of the mortgage despite the balance. The only way to remove mortgage insurance is to refinance.
Removing Mortgage Insurance From FHA Loans
Removing mortgage insurance from FHA loans is not as simple as it was previously. Most people resort to FHA for the low 3.5% down payment option. It is important to understand that mortgage insurance will not be eliminated from these mortgages. Customers with FHA case numbers pulled prior to June 3, 2013 need not worry about this change. Also, there are other exceptions such as streamline refinances of loans endorsed prior to May 31, 2009 and Home Equity Conversion Mortgages. Speak with loan officer for additional information.