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Home Talk Blog

Clever Ways to Save Money By Reducing Your FHA Mortgage Insurance

by US Mortgages / December 28, 2018

The beautiful thing about FHA mortgage loans is that they help people become homeowners if they only have a small down payment, and in some cases, even if they don’t have stellar credit!  

The trade-off is that FHA borrowers have to pay mortgage insurance. Mortgage insurance is a monthly premium (and sometimes an upfront expense as well) that protects the lender in case a borrower defaults. From the mortgage loan and refinance companies’ point-of-view, it’s "riskier" to lend money to borrowers with lower down payments and/or lower credit scores so mortgage insurances acts as an added protection.

The good news is you’re not stuck with mortgage insurance forever – at least not if you use these clever ways to save money on your FHA mortgage insurance. 

Option #1: Restructure your FHA loan

Restructuring your FHA loan to completely remove your mortgage insurance is possible for most homeowners. However, there are certain criteria you’ll need to meet to qualify for this mortgage insurance removal.

The exact criteria you need to meet depends on when your current mortgage started. FHA mortgage insurance rules changed on June 3, 2013, so there are different criteria for mortgages dated before and after then. 

If your current mortgage is dated before June 3, 2013:

Lucky you! You get to remove your mortgage insurance as soon as your home equity reaches 22%. You’ll just need a simple home appraisal to show your lender that the loan balance is now 78% (or less) of the home’s current value. 

If you are working toward that 22% equity, increasing home values certainly help! However, you can move the process along faster by making extra payments on your mortgage to pay down your loan sooner.

If your current mortgage is dated June 3, 2013, or later:

Your ability to restructure your FHA loan to remove the mortgage insurance depends on the size of your down payment

  • If your down payment was 10% or more, you can remove your mortgage insurance after 11 years of making your loan payments.

  • If your down payment was less than 10%, you are required to pay mortgage insurance for the entire life of the loan. There is another option to save money on your mortgage insurance even if you’re in this latter group though!

Option #2: Refinance to a conventional loan

Once your equity reaches 20%, mortgage refinance companies can help you refinance to a conventional loan. 

Conventional loans aren’t backed by the FHA (Federal Housing Administration), so they don’t require mortgage insurance. Your interest rate might increase slightly by refinancing to a conventional loan, but the mortgage insurance savings might be well-worth the slight interest rate bump.

Talk to US First!

Mortgage refinance companies, like US Mortgages, are more than happy to help you save as much money as possible on your mortgage loan. We’ll gladly crunch all your numbers to figure out the best solution for your unique circumstances. Call US at 720-524-8020 to get all your mortgage insurance questions answered by one of our experts, and find out how much you can save on your FHA mortgage insurance today. 

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Tags: FHA Loans

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