TWO EASY WAYS TO CANCEL FHAMORTGAGE INSURANCE

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Your current FHA loan likely helped you get into a home that you would otherwise have been unqualified to obtain. That was great news back then, but now that you have been making payments on it for many years and are still paying that pesky mortgage insurance, it can feel like you are throwing money out the window. The good news is that you have two options to get rid of the insurance: refinance your loan or eliminate the mortgage insurance manually.

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Refinancing your Loan

The easiest way to eliminate mortgage insurance is to

refinance. Now, you will have to refinance into a

conventional loan that does not require mortgage

insurance like the FHA loan does. The caveat to this

requirement, however, is that you must only borrow less

than 80% of the value of the home. If you have been

paying on your FHA loan for many years, you may be

there already and this will not be an issue. If you have

not been paying long enough to get down that low, you

have a few options:

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Refinancing your Loan

If you have not been paying long enough to get down that low,

you have a few options:

Take the PMI and know that it can be

cancelled once you hit below 80% LTV

Open a 1st and 2nd mortgage, known as a

piggy­back in order to avoid going over 80%

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Refinancing your Loan

If you have good credit, you might be able to get that secondloan that makes up whatever money you owe over 80% value.The key is not only your credit; however, it is your debt-to-income ratio. You must be able to show that you can afford twomortgage payments, plus the other monthly obligations that youhave without going over the maximum debt-to-income ratio thatthe lender requires.

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Refinancing your Loan

If you are able to refinance your loan, you are done withthe FHA mortgage insurance premiums once and for all!If you must take PMI on the conventional loan, it willautomatically cancel once your home hits 78% LTV oryou can ask for it to be manually cancelled once you arebelow 80%.

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Manually CancelingFHA Mortgage Insurance

If you do not want to refinance or do not think you will qualify fora conventional loan, you have another option – cancelling yourFHA mortgage insurance. This requires a little work and certainguidelines that must be met. Your loan must have been openedbefore June 3, 2013; if it wasn’t, then you are automatically noteligible. In addition, you must have been making your paymentson time; have made 5 years of payments (on a 30-year loan)and have an LTV that is no higher than 78%. If you took out themaximum FHA loan amount by only putting down 3.5% whenyou obtained the loan, chances are will take you quite a while toget to that 78%, so the 5 year rule will not even apply to you.

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Manually CancelingFHA Mortgage Insurance

Once you meet each of these requirements, you canwrite to the lender and ask for the mortgage insurance tobe cancelled. If you are at the 78% already and youhave made 5 years of payments, it should be cancelledautomatically by law though. If you are not quite thereyet, there is a light at the end of the tunnel, allowing youto focus on making your payments on time even thoughyou cannot qualify for conventional financing – you willeliminate that mortgage insurance soon!

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FHA mortgage insurance is no longer a lifelong payment that you must deal with, feeling as if you are throwing money out the window. There will come a time that you can stop paying it. If you have improved your credit and your debt-to-income ratio is in line, you may even be able to refinance out of it sooner in order to get to paying your mortgage down even more!

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INFORMATION PROVIDED BY:

Justin McHood

Mortgage Commentator

Information Originally Published: 9/30/15

Justin McHood is Americas Mortgage Commentator and has been providing Mortgage commentary for over 10 years.

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