Different types of Loans for Homes

FHA Loans: Mortgage Insurance Premium (MIP)

While conventional loans have more strict underwriting guidelines, FHA-insured loans require a small amount of cash to close a loan. As a result, all borrowers must pay MIP to insure the investor against loss if the homeowner defaults on the mortgage. While there are ways to avoid PMI with conventional loans, there is no way to avoid MIP on FHA loans because the minimum down payment is only 3.5%.

Whether MIP can ever come off your FHA loan depends on a few factors, including when it was originated, the amount of your down payment, and the current loan-to-value (LTV) ratio.

For originations on or after June 3, 2013, FHA requires MIP to be paid for 11 years if your original LTV is 90% or lower, and for the life of the loan if it’s over 90%. For more details, visit this post.

For loans originated as of October 4, 2010, if your FHA term is more than 15 years, your monthly mortgage insurance payments will be cancelled when the LTV reaches 78%. This is calculated based on the original value of your FHA home loan and only if you paid the annual MIP amounts for at least five years. If the term of your FHA loan is 15 years or less, with an LTV of 90% or greater, the monthly mortgage insurance payments will stop when the LTV reaches 78%. Mortgages with an LTV of 89.99% or less will not be charged annual mortgage insurance premiums. If your loan was originated on or after April 18, 2011, FHA made a change to their MIP factors which impacted the 15-year loan. Now, there is MIP on LTVs greater than 78%. LTVs less than or equal to 78% do not require MIP, however not all lenders have followed suit with the 0% MIP on LTVs less than 78%.