Working within the Frisco area, a common question with home owners that currently have an FHA loan, and prospective home owners trying to decide between an FHA or Conventional loan, “when does mortgage insurance fall off of the FHA loan”. The answer to that is not a mystery, but it does involve an explanation, rather than just a simple answer.
First, MIP stands for Mortgage Insurance Premium, and in correct mortgage definition, it’s called the annual mortgage insurance. That is a little misleading, because you pay if monthly. The other is called UPFMIP, or Up Front Mortgage Insurance Premium.
The time at which your mortgage insurance goes away is determined by these factors: LTV (Loan To Value), time that you have been in the loan, term at which you started with (30yr loan, 15yr loan…etc).
For FHA loans of 15yr terms or more, you must have an LTV of 78% or you could say that you have 22% equity, before your MIP will go away. On the contrary, if your LTV reaches this point before you have been in the loan 5 years, then you have to wait until you have had the loan for 5 years. If you have an FHA loan that is 15yrs or less, the MIP falls off when the LTV is 78% and no time in the loan is required.
How do you prove that you have 78% LTV? Well, Elly at http://elly.savingadvice.com/2007/04/05/fha-loan-pmi_24475/ said it as simple as it can be said,
“FHA will determine when a borrower has reached the 78% LTV ratio based on the lesser of the sales price or appraised value at loan origination. For example, if the lesser of the sales price or the appraised value at origination was $100,000, when the loan amount reaches $78,000, HUD will no longer collect MIP on the loan.”
If you should have more questions, call me, Frisco’s Mortgage Guy For Life, at 469-450-2723.