This guide covers eliminating FHA mortgage insurance premium by refinancing FNMA. Borrowers taking out an FHA insurance mortgage loan, besides paying an upfront mortgage insurance premium of 1.75%, borrowers need to pay an annual FHA mortgage insurance premium of 0.55% for the life of the FHA Loan.
FHA mortgage insurance premium can be a substantial amount for any mortgage loan borrower. Eliminating FHA mortgage insurance premium will greatly save any homeowner money that can be allocated somewhere else.
Homeowners who have owned their homes for the past several years are sitting on equity where they can refinance their FHA loan to a conventional loan and eliminate their annual FHA mortgage insurance premium. Many homeowners have built up substantial equity in their homes where they can qualify for a cash-out refinance on a conventional loan and still eliminate the FHA MIP.
The Hefty FHA Annual Mortgage Insurance Premium
The Federal Housing Administration has changed rules concerning FHA mortgage insurance premiums. Before, an FHA mortgage holder’s FHA mortgage insurance premium was eliminated if the borrower paid on the FHA mortgage insurance premium for 5 years and had at least a 78% loan to value in their home. Refinancing your FNMA (Fannie Mae) mortgage to eliminate FHA (Federal Housing Administration) mortgage insurance premium (MIP) is possible. However, there are some important factors to consider:
Now, the FHA mortgage insurance premium is effective for the life of the 30 year FHA mortgage loan. The only way out of it is by either selling home or refinancing the current FHA-insured mortgage loan into a conventional loan.
The housing market has been booming for the past several years. Home prices have hit all-time highs without any sign of a housing correction. Average home prices have increased by over 34% in 2023. Both HUD and the Federal Housing Finance Agency have increased FHA and Conforming loan limits for the past five years due to skyrocketing home prices.
Qualify for FHA loans, click here
Conventional Loan Eligibility
Loan-to-Value (LTV) Ratio: The key to eliminating FHA MIP through refinancing is to reduce your LTV ratio below 80%. FHA MIP is required for loans with an LTV ratio greater than 80%. You might be eligible if your home’s value has increased or you have paid down your mortgage balance significantly.
To eliminate FHA MIP, you would typically refinance into a conventional loan (not backed by the government). Your credit score, income, and debt-to-income ratio will significantly determine your eligibility for a conventional loan.
You’ll likely need a new appraisal to determine the current value of your home. If the appraisal value supports a lower LTV ratio, you will likely qualify for a conventional loan without MIP. There are closing costs on refinancing your home loan, which can be substantial. You’ll need to consider whether the potential savings from eliminating MIP outweigh these costs.
Private Mortgage Insurance (PMI)
Before proceeding with refinancing, it’s essential to consult with a mortgage professional who can assess your specific circumstances and provide guidance on whether refinancing to eliminate FHA MIP is a viable option for you. Additionally, the rules and regulations regarding FHA and conventional loans can change, so staying up-to-date with the latest information is crucial.
While conventional loans don’t have FHA MIP, they may have PMI, which is private mortgage insurance, if your down payment is less than 20%. Be sure to understand the costs and requirements of PMI if it applies.
Your credit score and financial stability will be closely examined by lenders during the refinancing process. Ensure your credit is in good shape and your financial situation is stable to increase your chances of approval. Different lenders may have varying requirements for refinancing. It’s a good idea to shop around and compare offers from multiple lenders to find the best terms for your situation.
Private Mortgage Insurance Requirements
Conventional loans with more than an 80% loan to value require private mortgage insurance. With conventional loans, the mortgage insurance is not a fixed factor-like FHA’s 0.55%. For borrowers with over 700 credit scores, it can be lower than FHA mortgage insurance premiums. There is no set percentage of the mortgage loan amount like FHA MIP.
Normally, conventional private mortgage insurance premiums can be higher or lower than FHA mortgage insurance premiums depending on borrowers’ credit scores, loan to value, and type of property.
Another advantage of conventional loans is that private mortgage insurance can be eliminated once the loan to value drops to 80% loan-to-value. Any borrower who puts a 20% down payment on a conventional mortgage loan purchase is not required to have private mortgage insurance.
Qualify for Non-Qm mortgage loans, click here
Eliminating FHA Mortgage Insurance Premium
We now offer conventional mortgage loans that have greater than 80% loan to value with no mortgage insurance. It is called LPMI, lender-paid mortgage insurance, and it is geared towards borrowers with good credit and lower debt to income ratios. This means that anyone with less than 20% equity on their home can now qualify for the LPMI conventional mortgage loan program. Mortgage rates are slightly higher.
Conventional mortgage loan program is a phenomenal loan program. FHA mortgage loan homeowners can refinance their current FHA-insured mortgage loan and eliminate paying their FHA mortgage insurance premium.
Homeowners need to get a net tangible benefit to be able to refinance. Check the current interest rates to see if refinancing makes financial sense. If the mortgage rates are significantly lower than your current rate, it could be a good time to refinance. Homeowners who are thinking of eliminating FHA Mortgage Insurance Premium by refinancing conventional can contact us at Gustan Cho Associates at 800-900-8569. Text us for a faster response. Or email us at gcho@gustancho.com. Gustan Cho Associates Mortgage Group is a five-star national mortgage company with no mortgage overlays on government and conventional loans.
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