Can Mortgage Insurance Premium Be Removed From an FHA Loan?

Federal Housing Administration (FHA) loans offer an accessible pathway to homeownership, especially for borrowers with lower down payments or credit scores. A distinguishing feature is the mandatory Mortgage Insurance Premium (MIP), an insurance policy protecting lenders against default. This premium is typically paid monthly, alongside principal, interest, property taxes, and homeowner’s insurance. Many FHA borrowers seek to eliminate this ongoing cost.

Eligibility for Mortgage Insurance Premium Removal

Removing Mortgage Insurance Premium (MIP) from an FHA loan depends on its origination date: June 3, 2013. Loans originated before this date have different MIP cancellation rules than those originated on or after it.

For FHA loans originated before June 3, 2013, MIP can be cancelled automatically. This typically occurs when the loan-to-value (LTV) ratio reaches 78% of the original purchase price or appraised value, based on the original amortization schedule. Some older FHA loans may also require five years of payments in addition to the LTV threshold. Lenders automatically discontinue MIP once these conditions are met and the borrower maintains a consistent payment history.

FHA loans originated on or after June 3, 2013, have stricter MIP rules. If the initial loan-to-value (LTV) ratio was 90% or less, MIP automatically ceases after 11 years. However, for loans with an initial LTV greater than 90%, MIP is required for the entire loan life. For many FHA borrowers, MIP cannot be automatically removed. Refinancing into a conventional loan is the only way to eliminate it.

Refinancing for Mortgage Insurance Premium Removal

Refinancing an FHA loan into a conventional mortgage is the primary method to remove ongoing Mortgage Insurance Premium, especially for loans originated after June 3, 2013, with higher initial loan-to-value ratios. This process involves gathering financial information and applying for the new loan. Borrowers should assess their financial standing and the property’s value.

During the preparatory phase, borrowers compile key documents and financial metrics. Lenders evaluate credit scores; conventional loan programs typically require 620 or higher, with better terms for scores above 700. Income verification requires recent pay stubs, W-2 forms from the past two years, and sometimes tax returns to confirm stable employment and sufficient earnings. A consistent employment history, generally two or more years in the same field, strengthens a refinance application.

Gather FHA loan statements for the new lender, including loan account number, outstanding balance, and payment history. The new lender will order a property appraisal to determine the home’s current market value, essential for calculating the new loan-to-value ratio. Borrowers should also calculate their debt-to-income (DTI) ratio, which includes monthly debt payments against gross monthly income. Conventional lenders typically prefer a DTI below 43-50%. These components determine eligibility for a new conventional loan, which does not carry FHA mortgage insurance.

Once preparatory information is assembled, the conventional refinance application begins. Borrowers should research and compare offers from conventional lenders for competitive interest rates and terms. After selecting a lender, submit the application package, including all financial documents. The lender then initiates underwriting, verifying all provided information and assessing the borrower’s financial risk.

During underwriting, the lender arranges an independent property appraisal to confirm market value and support the new loan amount. Upon successful underwriting, the borrower receives a loan commitment and can lock in an interest rate for a specified period, protecting against market fluctuations. The final step is loan closing, where documents are signed, closing costs are paid, and the original FHA loan is paid off with funds from the new conventional mortgage. This payoff removes the FHA’s Mortgage Insurance Premium requirement, as the loan is no longer FHA-insured.