As I stated in my blog on Monday titled "What The Homeowner Protection Act Is, And How Does It Affect You?" I would be posting a more detailed blogs on how both Private Mortgage Insurance (PMI), and the FHA Monthly Insurance Premium (MIP) can be canceled, and when. Yesterday I posted "How And When Private Mortgage Insurance (PMI) Maybe Canceled". This blog is on How And When FHA Monthly Insurance Premium (MIP) Maybe Canceled after the FHA MIP changes on June 3, 2013.
Prior to June 3, 2013 FHA Monthly Insurance Premium (MIP) could be canceled after 5 years and the principle balance had been paid down to 78%. But on on June 3, 2013 FHA change how MIP could be canceled, and made it very difficult to eliminate the MIP for the average FHA Borrower.
The chart below gives a clear explanation of the FHA Mortgage Insurance Premium (MIP) Cancellation Changes On 6/03/13, based on the Term of the Mortgage, and the Loan-To-Value (LTV)
Presently ALL FHA Mortgages with a downpayment less than 10% the MIP will remain for the LIFE TIME OF THE LOAN! There is no way to cancel the MIP, except to refinance out of the loan.
NOTE: Most FHA Mortgages have a 3.5% downpayment
For FHA Mortgages with a downpayment of 10% or more (even for FHA Loans with a 20% or more downpayment), the MIP will remain on the loan until the loan has reached 11 years AND the principle loan balance has been paid down to 78% Loan-To-Value (LTV). Unlike PMI where the 78% LTV can be reached by a combination of paying down the principle balance of the mortgage, and the value of the property increasing. The ONLY way to reach the 78% LTV is by paying down the principle balance. It does not matter how much the value of the property goes up, the MIP will not cancel until the principle balance reaches 78% LTV.
I am going to state this again because it is VERY important, unlike PMI the MIP cannot be eliminated by ordering an appraisal to show the value of the property increased. The equity of the property does not play a roll in canceling the MIP like it does in canceling PMI. The only way to eliminate the MIP is by paying down the principle balance and meeting the required number of years.
Also unlike PMI the Borrower does not have to do anything to cancel the MIP, because the once the 11 years AND the principle loan balance has been paid down to 78% (LTV), the Lender will automatically cancel the MIP. If the Lender fails to eliminate the MIP, after the Borrower has met the 11 years requirement AND the principle loan balance has been paid down to 78% (LTV), the Borrower simply needs to point that out to the Lender, and they cancel the MIP.
Hopefully FHA will at a minimum revert back to the MIP guidelines prior to June 3, 2013 in the near future, but for now these are the guidelines on How And When FHA Monthly Insurance Premium (MIP) Maybe Canceled.
Info about the author:
George Souto NMLS# 65149 is a Loan Originator who can assist you with all your #FHA, #CHFA, and #Conventional #mortgage needs in Connecticut. George resides in Middlesex County which includes #Middletown, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com
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