Many home buyers who obtain FHA mortgages were attracted to the low down payment feature. Given that mortgage insurance is typically assessed on loans for greater than 80% of the value, most FHA home buyers have mortgage insurance payments. The process for removing that fee depends on when the loan was issued by FHA. Below is information on removing mortgage insurance from FHA loans issued prior to June 3, 2013.
Removing Mortgage Insurance Gradually
With each mortgage payment made, you pay down a fraction of your loan. In the early several years, the fraction going towards interest is higher than the amount towards the principal, but this eventually changes. Mortgage insurance is ultimately removed when the loan is reduced to 78% of the original purchase price. You can also make extra payments to principal to get to this mark sooner.
With many loans, you can request that mortgage insurance be removed when the balance reaches below 80%. It definitely makes sense to do this and eliminate mortgage insurance costs for a few more months. Refer to your loan documents to see if this is allowed.
Improvement in Home Values
Loan-to-value percentages are determined by your loan amount and the initial price or current market value. If home values increase in a short time, your loan balance might be less than 80%, thereby removing your mortgage insurance. To remove mortgage insurance using this option, you must call your Lender to order an appraisal. You are invoiced the cost, but it pays for itself if your mortgage insurance disappears as a result. Additionally, you must have had your loan for at least 5 years to qualify.
More on Removing Mortgage Insurance From FHA Loans
Mortgage terms typically get modified over the years. The above is simply an overview of normal FHA loan terms. Be sure to refer to your specific documents regarding removing mortgage insurance from FHA loans. You can also call a mortgage officer for more assistance.
