Introduction
If you have an FHA mortgage, you may be wondering how to get rid of FHA mortgage insurance. FHA mortgage insurance is a type of insurance that protects lenders in case borrowers default on their loans. It is required for all FHA loans and can add a significant cost to your monthly mortgage payments. However, there are a few ways to eliminate FHA mortgage insurance and potentially save money in the long run.
Refinance into a Conventional Loan
One of the most common ways to get rid of FHA mortgage insurance is to refinance your FHA loan into a conventional loan. Conventional loans do not require mortgage insurance if you have at least 20% equity in your home. By refinancing into a conventional loan, you can potentially eliminate the need for mortgage insurance and lower your monthly payments.
Requirements for refinancing into a conventional loan: To qualify for a conventional loan, you typically need a credit score of at least 620 and a debt-to-income ratio of 45% or lower. You also need to have at least 20% equity in your home.
Make a Larger Down Payment
Another way to avoid FHA mortgage insurance is to make a larger down payment when purchasing a home. If you can afford to put down at least 20% of the purchase price, you may be able to qualify for a conventional loan and avoid the need for mortgage insurance altogether.
Benefits of making a larger down payment: In addition to avoiding mortgage insurance, making a larger down payment can also help you build equity in your home faster and potentially qualify for a lower interest rate.
Wait for Automatic Termination
If you have an FHA loan that was originated after June 3, 2013, you may be eligible for automatic termination of mortgage insurance. According to the Federal Housing Administration, mortgage insurance on most FHA loans will automatically terminate once the loan reaches 78% loan-to-value ratio (LTV) based on the original purchase price.
Factors to consider: It’s important to note that if you have made substantial improvements to your home or if home prices have increased significantly in your area, you may be able to request an appraisal to demonstrate that your loan-to-value ratio is below 78%. This could potentially allow you to cancel your mortgage insurance sooner.
Conclusion
Getting rid of FHA mortgage insurance can help you save money on your monthly mortgage payments. Whether you choose to refinance into a conventional loan, make a larger down payment, or wait for automatic termination, it’s important to explore your options and determine the best course of action for your specific situation. By understanding the requirements and potential benefits of each method, you can make an informed decision and potentially eliminate the burden of FHA mortgage insurance.
References
– www.fha.com
– www.bankrate.com
– www.hud.gov
