Mortgage insurance is normally applied to loans for greater than 80% loan-to-value. Most buyers who turn to FHA have little to put down and will thus require mortgage insurance on a monthly basis. The premium is based on a percentage of the loan principal and might represent a large portion of the monthly payment. People therefore benefit from eliminating mortgage insurance from FHA home loans, but updated policies have altered how mortgage insurance removal works.
Mortgage Insurance Rules
In 2013, FHA changed mortgage insurance calculations. These relate to loans with case numbers pulled after June 3, 2013. In the past, all FHA home loans had a set clause where mortgage insurance was removed when the remaining balance approached a certain percentage. This is no longer the case. There are now varying rules based on a few variables. This article covers 2 common types of mortgages.
Mortgages Less Than 90% LTV
For 30 year FHA home loans where borrowers submit a down payment of 10% or more, removing mortgage insurance is possible. There are two major conditions. First, mortgage insurance must be paid for at least 11 years on that mortgage. Secondly, the principal balance must be 78% or lower than the original price or current appraised value.
Loans Higher Than 90% LTV
For 30 year FHA home loans where the down payment is less than 10% (such as the 3.5% minimum), eliminating mortgage insurance is not allowed. Mortgage insurance stays in place for the entire life of the mortgage regardless of how much it is paid down. The only way to eliminate mortgage insurance for this kind of loanis a refinance.
Eliminating Mortgage Insurance From FHA Home Loans
Eliminating mortgage insurance from FHA home loans is not as simple as it was previously. Most buyers choose FHA for its low down payment option. It is helpful to keep in mind that mortgage insurance will not be eliminated from these mortgages. People with FHA case file numbers dated before June 3, 2013 do not need to worry about this change. There are also additional exceptions such as streamline refinances of mortgages endorsed before May 31, 2009 and Home Equity Conversion Mortgages. Contact your loan officer for further details.