And it can be the only way to do it if you opened your FHA loan on or after June 3, , when FHA mortgage insurance became non-cancellable. Conventional private mortgage insurance, or PMI, has to be paid for just two years, then is cancellable. In as little as two years, you could be rid of mortgage insurance forever. You might have more equity than you think. Use your new-found equity to discontinue your FHA mortgage insurance. Refinance into a new loan that does not require mortgage insurance of any kind, and do it immediately.
If you have military experience, you might qualify for a VA refinance. Rates have been hovering around month lows recently. Homeowners who want to eliminate their FHA mortgage insurance should check rates and lock in a refinance before rates rise. You could save a lot of money every month in interest and mortgage insurance. Don't miss important home loan updates. Sign up for our newsletter. In some cases, borrowers must request mortgage insurance cancellation.
In other cases, the lender is required to cancel the insurance. The cancellation rules can be complicated, but borrowers have an opportunity to get rid of mortgage insurance at some point. With an FHA loan, it is more difficult for borrowers to stop paying for mortgage insurance. This restriction can make an FHA loan more expensive than the other options, especially if the borrower keeps the loan for many years.
If the borrower sells the home or refinances within a few years, the MIP cancellation requirements are not as material. Borrowers who have an FHA loan may be able to stop paying for mortgage insurance once certain conditions are met.
As of June , borrowers who have less than 10 percent equity must pay MIP for the life of their loan. Borrowers who have 10 percent equity or more must pay MIP for the full term of their loan or 11 years, whichever occurs first.
Borrowers can also stop paying MIP if they sell their home, refinance into a new loan without FHA mortgage insurance or pay off their loan balance.
While some conforming, VA and USDA loans also allow borrowers to make a very small down payment, these loans can be more selective than the FHA loan in terms of who can qualify. Fannie Mae insures one type of loan that has a minimum down payment of 3 percent with PMI. This loan is available only to buyers who haven't owned a home during the previous three years and homeowners who want to refinance certain types of existing loans. The VA loan allows borrowers to buy a home without a down payment.
This loan is available only to U. Borrowers who have a moderately low credit score might be able to qualify for an FHA loan with a reasonable interest rate, while that same credit score might trigger a significantly higher interest rate for a non-FHA loan.
Though the FHA mortgage insurance might be more expensive, the lower interest rate offsets some of that cost to the borrower. Borrowers whose credit score is very low might be limited to the FHA loan for that reason alone. Most other types of loans have higher minimum required credit scores. The bottom line is that home loans and mortgage insurance costs are complex and the comparison of an FHA loan to other loan options involves quite a few variables.
The FHA loan might be the best choice for one borrower, but not another. The best way to figure out which loan makes sense for you is to talk with a mortgage professional about your personal situation and shop around so you can compare the costs of each loan.
Marcie Geffner is an award-winning reporter, writer and editor. Geffner's current projects include stories and articles for real estate and mortgage websites and magazines.
She has been writing about home loans and property transactions for more than 20 years. By Marcie Geffner. What is Mortgage Insurance? If you have, say, a 3. You can also refinance out of mortgage insurance. If you get an FHA loan to buy your house and find yourself living more comfortably later, you can always save up a down payment and get a conventional refinance loan.
With private mortgage insurance, lenders usually require an appraisal to prove your loan-to-value ratio is good enough to drop the insurance. That's bad news if your home's value has dropped. With FHA mortgage insurance there's no appraisal. The FHA uses your original purchase price or original appraised value, whichever is lower, as the basis for the cutoff point. A graduate of Oberlin College, Fraser Sherman began writing in Since then he's researched and written newspaper and magazine stories on city government, court cases, business, real estate and finance, the uses of new technologies and film history.
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