How to get rid of mortgage insurance on conventional loan

How do you want to learn about mortgage insurance?

The requirements for removing your mortgage insurance premium (MIP) or private mortgage insurance (PMI) depend on your loan. Keep in mind the best way to figure out when you can remove your mortgage insurance is to call us. Here are some general guidelines.

Canceling MIP on FHA loans

Depending on when you applied, FHA guidelines may allow for MIP to be canceled if you:

• Applied between January 2001 and June 2013: Please contact us when you meet all three of the following conditions, and we will review your loan for MIP removal eligibility:

1. You’ve maintained a good payment history without any 30-day late payments for the past 12 months
2. When you reach 78% loan-to-value (LTV) based on the original value of your home
3. You have paid MIP for at least 5 years since originating your current first mortgage. Your options may be affected if you’re working with us on payment assistance or your loan has had a partial claim. Please contact us if you want to know whether you can remove your MIP while on payment assistance.
   

• Applied after June 2013: If your original loan amount was less than or equal to 90% LTV, MIP will be removed after 11 years.

MIP cannot be canceled and will remain for as long as you have the loan if you:

• Closed between July 1991 and December 2000
• Closed before December 28, 2005 on a condo or rehabilitation loan
• Applied after June 2013 and your loan amount was greater than 90% LTV
  

Call us at 1-800-357-6675 if you have questions about removing your MIP and one of our customer service representatives will send you by mail information specific to your situation for removing your mortgage insurance.

Canceling PMI

For loans covered by the Homeowners Protection Act of 1998 (HPA), you can request to have PMI removed when your balance reaches 80% loan-to-value (LTV) based on the original value of your home. If you're requesting to have PMI removed, you:

• Have to get a home value assessment through Wells Fargo (at your own expense) to confirm your home's value hasn't declined since closing
• Must not have had any 30-day late payments within the past 12 months
• Must not have had any 60-day late payments within the last 24 months

Otherwise, we'll automatically cancel it when your balance is scheduled to reach 78% LTV if you're current on your payments.

If your home's value went up since closing, you may be able to cancel your PMI earlier, based on its current value. You'll need to get a home value assessment to confirm its value. Note that in addition to PMI removal options under HPA, the loan's investor may also have cancellation requirements. Be sure to call us at 1-800-357-6675 to get information mailed to you about your specific situation for when you can remove your PMI. See our FAQs to learn more.

Customers in MN, and NY may also have additional options for canceling PMI.

Calculating your LTV

To find your LTV, divide your mortgage balance by the original value of your home.

*As of July 6, 2020, Rocket Mortgage® is no longer accepting USDA loan applications.

If you buy a house with a down payment of less than 20%, you’ll likely be required to obtain private mortgage insurance (PMI) or mortgage insurance premium (MIP). These two types of mortgage insurance reduce a lender’s risk and allow you to qualify for a mortgage you may otherwise not be able to get.

While the amount you’ll have to pay in PMI or MIP will depend on a number of different factors, this additional cost may add hundreds of dollars to your monthly housing expenses. Fortunately, you don’t have to pay mortgage insurance forever. Keep reading to learn the best way to remove MIP and PMI.

What Is PMI?

PMI is required if you make a down payment of less than 20% on a conventional loan. There are three ways you can pay PMI including:

• Borrower-paid mortgage insurance (BPMI): BPMI is an additional fee that you’ll pay along with your mortgage payment until you have at least 20% equity in your home. It’s split into monthly installments.
• Lender-paid mortgage insurance (LPMI): If you’d like to avoid tacking on a fee to your mortgage payment, LPMI may be a good option. While your lender pays for the cost of the policy when you close, you’ll take on a higher interest rate. Essentially, you’re financing the cost of the policy into your actual loan.
• Single-pay mortgage insurance: With single-pay mortgage insurance, you pay for part of or all of a LPMI policy up front when you close in order to lock in a lower interest rate. If you do decide to pay off the entire policy, you’ll be able to avoid the monthly payment associated with BPMI.

What Is MIP?

MIP is similar to PMI but instead is intended for FHA government-backed loans. There are two components for MIP: an upfront premium (UFMIP) and an annual premium. As of August 2019 the upfront premium rate is 1.75% of the loan amount and the annual premium is 0.85%, broken into monthly installments.

It’s important to note that 0.85% of the annual premium rate only applies if you make the minimum 3.5% down payment. If you put more money down, you can expect your annual premium to decrease.

The 0.85% premium also applies to FHA loans of $625,500 or less for a 30-year mortgage. The rates are a little bit different if you have a mortgage term of 15 years or a loan amount greater than $625,500, so it’s a good idea to consult a Home Loan Expert.

If you’re refinancing from an already existing FHA loan into a new one (FHA Streamline), the upfront MIP is only 0.01% and the annual premium is only 0.55%. If you don’t have the cash to pay for the upfront mortgage insurance premium all at one time, there’s no need to worry as it can be financed into the cost of your loan.

In addition, if your down payment is 10% or less or you have less than 10% equity in a refinance, you’ll be required to pay MIP for the life of your loan. In the event you have 10% or more equity at closing, you’ll pay MIP for 11 years.

Other Types Of Required Loan Fees

USDA Loan Fees

If you opt for a USDA loan through a lender like Rocket Mortgage®1, you can expect to pay a guarantee fee. It’ll be 1% of the loan amount and can be built into your principal balance if you’re unable to pay it up front during closing.

While it’s uncommon to get a USDA loan directly through the USDA, you won’t be charged a guarantee fee if you do go this route.

In addition to a guarantee fee, you’ll be subject to an annual fee of 0.35% of the average unpaid principal balance at the end of each year. This will be based on the original amortization schedule for the loan and split into monthly payments.

VA Loan Fees

Although the VA loan doesn’t come with mortgage insurance, there’s a funding fee that can range from 2.15% – 3.3% of your loan amount. This funding fee can be built into your loan and will depend on several factors including:

• Whether or not it's your first time using a VA loan
• The size of your down payment
• Whether you're regular military or reserves/National Guard

If you pursue a VA Streamline where you refinance an existing VA loan to reduce your rate or change your term, your funding fee will be 0.5%. You may be exempt from this funding fee if you meet one of these criteria: 

• You’re receiving disability income from the VA.
• You're a surviving spouse of a military member who passed away in action or as a result of a service-related disability.

How Much Does Mortgage Insurance Cost?

If you decide on BPMI, your mortgage insurance will cost anywhere between 0.5% – 1% of your loan. Your rate will depend on factors such as your loan-to-value ratio (LTV), credit score, loan type and occupancy.

The same qualification factors that affect BPMI will also affect LPMI. In short, the more attractive you appear to a lender, the lower your upward rate adjustment will be. Since lenders have different deals with insurers in the private mortgage insurance space, the cost of mortgage insurance is an important factor to consider when you’re shopping around for a lender.

When it comes to the cost of mortgage insurance for FHA and USDA loans, rates and guarantee fees are set forth by the government so there’s no difference in price between the two.

Factors That Influence Your Mortgage Insurance

Loan-To-Value Ratio

Your loan-to-value ratio (LTV) is a measure of how much equity you’ve built up in your home. To calculate it, you’ll divide the amount you borrowed by the appraised value of your property. For example, if you buy a house for $250,000 and it’s currently worth $265,000, your loan-to-value ratio is 94.3%. In most cases you’ll need to pay mortgage insurance if your loan-to-value ratio is more than 80%.

Credit Score

Your credit score is a three-digit number that shows how likely you are to repay debt. The higher your credit score is, the less you’ll pay in mortgage insurance. For the purposes of mortgage qualification, the score that counts is your median FICO® Score between the three reporting bureaus. If your credit score is 700 or above and considered “good” or “excellent,” you can expect to pay less in mortgage insurance than a borrower with a credit score in the 500s or 600s.

Loan Type

The type of mortgage loan you take out will also have a significant impact on your mortgage insurance.

• FHA: With the FHA loan, you’ll have to pay about 1.35% in mortgage insurance during the first year if you make the minimum down payment for loans of $625,500 or less. It remains for the life of the loan.
• VA: If you take out a VA loan, you won’t have to pay mortgage insurance. Instead, there's a one-time funding fee that can be built into the cost of the loan or paid at closing. You may even be able to take out a mortgage without a down payment as well.
• USDA: While you may not have to put any money down with a USDA loan, you’ll need to pay a mortgage insurance rate that’s currently 0.35% per year for as long as you have the loan in addition to a 1% upfront guarantee fee which may be built into the cost of the loan.
• Conventional: If you have enough equity in your house, you won’t have to pay PMI. For a single-unit primary property, the magic number is 20% equity.

There are a number of factors that go into whether you can get rid of PMI. These factors include (but aren’t limited to) how much equity you have in your home and whether your equity has increased either because you’ve made improvements or the market value of your home has gone up. The number of years you’ve been paying mortgage insurance will play a role as well.

How To Get Rid Of MIP

If you’d like to get rid of MIP, you have two options. You can make a down payment of 10% or more and be MIP-free after 11 years. Alternatively you can refinance into a conventional loan once you’ve reached 20% equity.

Now that you’re more familiar with mortgage insurance, you can apply for a home loan online through Rocket Mortgage® . One of their friendly and knowledgeable Home Loan Experts will be happy to assist you. Call today at (888) 452-8179.

1Rocket Mortgage® and Rocket HQSM are separate operating subsidiaries of Rock Holdings Inc. Each company is a separate legal entity operated and managed through its own management and governance structure as required by its state of incorporation, and applicable legal and regulatory requirements.