Refinancing FHA Loan To Conventional Loan To Eliminate FHA MIP

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Refinancing FHA Loan To Conventional Loan To Eliminate FHA MIP

This BLOG On Refinancing FHA Loan To Conventional Loan To Eliminate FHA MIP Was Written By Massimo Ressa of Loan Cabin Inc. and Gustan Cho Associates

FHA Loans are the most popular mortgage loans today.

  • FHA Loans are not just for borrower’s with bad credit
  • There are times where borrowers with great credit and stable income with job longevity needs to go with a FHA Loan instead of Conventional Loan
  • This is often due to the fact that they may have higher debt to income ratios, recent bankruptcy, recent foreclosure, recent short sale, recent deed in lieu of foreclosure, or other factors that affect them in qualifying for conforming loans
  • The Federal Housing Administration, FHA, is a subsidiary of the United States Department of Housing and Urban Development ( HUD ), is in charge of all the rules and regulations of FHA Loans
  • FHA does not originate nor fund FHA Loans
  • FHA’s role is to insure FHA Loans that are originated and funded by FHA approved lenders
  • FHA approved lenders are private lenders such as banks and mortgage bankers who are HUD approved and meet all standards set by HUD
  • What happens is lenders will originate, process, underwrite, and fund FHA Loans as long as the borrower meets all of FHA lending guidelines
  • Once lender funds the Home Loan, HUD will insure lenders in the event borrower defaults on his or her FHA Loan
  • In order for FHA to insure lenders against borrower’s default, the Loan needs to have met all of the guidelines set by HUD when the Loan was originated and funded.

FHA Mortgage Insurance Premium

The biggest negative factor with FHA Loans is the pricey FHA mortgage insurance premium.

  • FHA mortgage insurance premium is mandatory for all 30 year fixed rate FHA Loans
  • This holds true regardless of the loan to value
  • There are two types of FHA mortgage insurance premiums
    • The upfront FHA mortgage insurance premium of 1.75% of loan balance is a one time charge that all borrowers have to pay but this cost can be rolled into the balance of the mortgage loan
    • The second FHA mortgage insurance premium borrowers need to pay is the annual FHA mortgage insurance premium which is 0.85% of the mortgage balance
    • The annual FHA mortgage insurance premium is held by lenders in an escrow account along with the homeowners insure
  • This is part of the borrower’s monthly mortgage payment
  • The only way it can be canceled is by paying off the FHA Loan or by Refinancing FHA Loan To Conventional Loan
  • The main reason most homeowners consider refinancing FHA Loan To Conventional Loan is mainly due to eliminate the pricey FHA Mortgage Insurance Premium to save money

How Do I Go About Refinancing FHA Loan To Conventional Loan

If homeowner purchased their home with a FHA Loan and can now qualify for a conventional loan, they can consider whether it will benefit them by refinancing FHA Loan To Conventional Loan.

  • One of the most important factors with conventional loans is that they are credit sensitive unlike FHA Loans
  • For example, for borrowers to get the best mortgage rates, they need a 740 credit score with at least 20% equity in their home
  • The lower the credit scores, the higher the mortgage rates will be
  • The less equity homeowners have, the higher the rates
  • Any conventional loan with less than 20% equity will require private mortgage insurance
  • However, unlike FHA Loans, if home appreciates in value and homeowners have at least 20% or more in equity due to appreciation of their home, private mortgage insurance can be canceled
  • Why refinance FHA Loan To Conventional Loan if homeowners still have to pay for private mortgage insurance and still have less than 20% equity in their home?  
  • The reason is that private mortgage insurance premiums are a fraction of the 0.85% annual FHA mortgage insurance premium for borrowers with higher credit scores
  • Private mortgage insurance can be canceled once homeowners have 20% equity in their home
  • With FHA annual mortgage insurance premium, the mortgage insurance cannot be canceled no matter how much equity homeowners have

Conventional Mortgage Rates Versus FHA Mortgage Rates

FHA mortgage rates are substantially lower than conventional mortgage rates. This is because FHA Loans are insured by the Federal Housing Administration against borrower’s default. Although conventional mortgage rates may be higher than FHA mortgage rates, it may be beneficial for homeowners to refinance FHA Loan To Conventional Loan due to the high FHA annual mortgage insurance premium. The loan officer will go over a full comparison and analysis to see whether Refinancing FHA Loan To Conventional Loan will be beneficial to homeowners. In order to be able to refinance a homeowner, the homeowner needs to get a net tangible benefit from refinancing. Loan officers can go over how much money borrowers can save over the term of their mortgage loan. Homeowners considering refinancing FHA Loan To Conventional Loan should contact us at Gustan Cho Associates at 262-716-8151 or email us at gcho@gustancho.com. We can run a free analysis for homeowners and get a full net tangible benefit analysis. Borrowers lower credit scores, we advice them on maximizing their credit scores prior to refinancing FHA Loan To Conventional Loan so they can get the best conventional mortgage rates.

3 Comments
  1. Gustan Cho, NMLS 873293 says

    Many homeowners do not realize that they may have 20% or more equity in their homes. The housing market is hot and has never been on fire like it has now. Both HUD and FHFA has increased FHA and Conforming Loan Limits for two years in a row due to appreciating home values throughout the nation. Even with mortgage rates that is the highest in ten years, the economy has fully recovered and is on a super fast paced growth. Never in history has unemployment numbers and the GDP has been so good. Hispanic and African American unemployment has been the lowest in U.S. History. Please check into the value in your home and see if your homes have appreciated. Right now may be the best time to refinance your FHA Loan to Conventional Loan and get rid of the hefty 0.85% annual FHA Mortgage Insurance Premium.

  2. ALEX CARLUCCI says

    If your looking to refinance from an FHA loan to a conventional loan to drop the private mortgage insurance you always do not need to be at 80 percent to save money. Their is a loan out there called LPMI. Not all lenders offer this. LPMI will go up to 95% LTV. You do need a high credit score to make this work properly in your favor. What LPMI is your private mortgage insurance built into the rate. This usually is a cheaper payment than doing a regular loan with regular private mortgage insurance. So if you are interested please ask us about LPMI program.

    1. Gustan Cho, NMLS 873293 says

      Alex Carlucci is correct. Homeowners without 20% equity can qualify for Conventional Loans with Lender Paid Mortgage Insurance. Also called LPMI. Here is a blog I posted and published not too long ago explaining on what LPMI is and how it works: https://gustancho.com/lender-paid-mortgage-insurance

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