FHA Mortgage Insurance Premiums
The Mortgage Insurance Premium (MIP) you pay is what allowed the reduced down payment on your mortgage. Generally if you placed less than 20% down on your purchase. If the insurance premium is paid to FHA, then yours is an FHA loan, and FHA insures your lender against losses if the loan goes to foreclosure. Regulations were changed in 2001 for some new mortgages to be eligible to stop making the premium payments after a certain loan-to-value ratio is reached.
Private Mortgage Insurance (PMI)
PMI is an insurance premium paid to a third party company that insures your lender against losses if your loan goes into foreclosure. PMI premiums can either be paid up-front through the closing costs, or in your monthly payment as a monthly premium. Generally many mortgage insurance premiums can be reduced or removed once you have 20% equity in your home. Review your closing documents and see what the exact terms of your mortgage insurance. Review your monthly mortgage statement to see how much you are currently paying on mortgage insurance.
Many home buyers ask their mortgage insurance company if they can stop paying monthly mortgage insurance premiums with their mortgages. FHA insures mortgages so that lenders will be encouraged to make more mortgages available for people. The FHA mortgage insurance agreement is between FHA and the mortgage company, so you must contact your mortgage company and ask them what they require to drop the insurance. Most mortgage companies will want you to have a substantial amount of equity in your home. Your lender generally requires an appraisal of the property paid by the borrower. A few hundred dollars spent on an appraisal could save you thousands in private mortgage insurance premiums.
Refinancing your mortgage to remove PMI
A refinance cold remove the monthly PMI premium from your home loan. If you have gained significant value in your home since your purchase. You may qualify to refinance your home at a lower loan to value, which will reduce your rate and monthly mortgage payments. Your new home loan should be under 80% of your home’s value in order to effectively avoid PMI premiums. A loan officer can research the values of home in your area and determine whether you may be able to remove your PMI premiums, and reduce your rate. You may save hundreds of dollars per month allowing you to pay your home off years sooner, or free up your monthly budget.
For new mortgages insured as of January 2001, HUD/FHA has clarified the requirements for removing insurance premiums for some types of mortgages. You may read your contract and then contact your mortgage company. HUD cannot remove the insurance premiums for you.
FHA Mortgage Insurance Refunds
If you paid off your FHA loan early, and you didn’t automatically receive your refund, or your refund wasn’t conveyed to your new FHA loan, you may be eligible for a HUD/ FHA refund. Check the HUD/ FHA website to see your eligibility.