If you’re in the market for an FHA loan, you probably know all of this.
But there’s one thing–and it’s a big thing–that kind of mars all of that goodness: MIP. For those of you that don’t know, that’s MORTGAGE INSURANCE PREMIUMS. Nasty, nasty words, to be sure, but MIP is unavoidable. Or is it?
As it turns out, it’s possible to refinance that MIP right outta your hair.
The FHA’s, unlike Fannie Mae and Freddie Mac, is an insurer of mortgages. The organization has a set series of guidelines that banks can use to underwrite mortgages. When a bank issues a loan that meets these guidelines, it can be insured by the FHA, meaning that they’ll back up the bank and pay off the debt if that loan goes into default. In short, the FHA has the banks’ backs.
To get THEIR backs, the FHA has a little help of its own.
To make sure their coffers stay full and that they’re flush to handle any loan defaults–the FHA is totally self-funded, in case you didn’t know–they have something called the Mutual Mortgage Insurance Fund (MMI), which gets its money from two types of mortgage insurance premiums paid by FHA-backed borrowers. There’s up-front Mortgage Insurance Premiums and annual Mortgage Insurance Premiums. If you have an FHA loan, you’ve likely paid both types. Chances are, you didn’t like it all that much, either.
But you CAN get rid of MIP. It’s true.
There are several ways that MIP can go away on its own. Most of these, however, require lots of time. But it’s possible to refinance into a conventional loan and get rid of that MIP entirely. The things for which you qualify will vary, of course, depending on your situation. But MIP is something that can add a lot of cost to your monthly mortgage payment and if you don’t have to have it, why have it?
If MIP is a thorn in your side and you’d like to see if you can turn it into a memory, talk to your lender. Interest rates are low and there are lots of programs to help borrowers at every level.
Rates are great right now–both for new loans and for refinancing–and you should know your Ps and Qs. FHA loans offer great opportunities for buyers to get into the homes they want, but they do come with some strings. Make sure you’re educated about your options and that you get the right loan for your situation.
Talk to your lender or financial professional for guidance. Remember: you have options.