How to Remove FHA Mortgage Insurance in Texas

To remove FHA mortgage insurance in Texas, a common route is to build enough equity and refinance into a conventional loan if you meet the requirements. However, you can also wait for automatic removal if you qualify.

Read on to understand how FHA mortgage insurance works and explore ways to remove it.

What Is FHA Mortgage Insurance?

Mortgage insurance premium (MIP) is a type of mortgage insurance that protects lenders against certain losses when a borrower defaults on an FHA loan. This mortgage is backed by the Federal Housing Administration (FHA), which is part of the United States Department of Housing and Urban Development (HUD).

MIP helps reduce the risk to lenders and allows them to offer better loan terms to borrowers with lower credit scores, limited savings, or other financial challenges.

You’re required to pay FHA MIP regardless of your down payment amount.

• Upfront MIP: You must pay an upfront MIP that’s 1.75% of your loan amount at closing. You can either pay it in full along with your other closing costs or roll it into the FHA loan, which will increase your loan balance.
• Annual MIP: It’s collected in 12 monthly installments and added to your monthly mortgage payment. The insurance amount depends on your loan’s average outstanding balance for the year. It declines annually as your principal loan balance decreases.

Ways to Eliminate FHA MIP

Follow these steps to remove FHA mortgage insurance in Texas:

Check your eligibility.

The date your FHA loan was originated, or when your FHA case number was assigned, determines whether it’s possible to cancel your FHA MIP.

Find out whether you’re eligible below:

Wait for your FHA MIP to end automatically.

If your loan is eligible for mortgage insurance cancellation, your mortgage servicer should automatically remove the MIP once you meet the loan’s requirements.

Depending on your loan origination date, automatic MIP cancellation may happen once your loan reaches 78% LTV or after 11 years.

Remember: Maintain consistent, on-time loan payments to keep your loan in good standing. Contact your mortgage servicer if your MIP isn’t automatically canceled after you qualify.

Refinance into a conventional loan.

Refinancing your FHA loan to a conventional mortgage is often the most direct way to remove MIP. When you refinance, your current FHA loan is replaced with a new loan.

Refinancing makes sense for your situation if:

• You have enough equity to cancel private mortgage insurance (PMI), which borrowers can remove by reaching 20% equity in their home.
• You meet the lender’s criteria to qualify, including income, credit score, and employment requirements.
• You can secure a more competitive interest rate than your current rate, and the new loan terms justify the refinance.

Avoid refinancing if:

• The closing costs are high. Refinancing often requires closing costs that are around 2% to 5% of the loan amount.
• The refinance rate is higher than your current FHA rate.
• Your monthly savings are small.
• You plan to sell your home soon.

Here are more considerations when deciding whether to refinance:

• Boost your credit score by avoiding missed or late payments and keeping your balances low. With a higher score, you may qualify for better rates.
• Check your LTV ratio. If you’ve done major home improvements or nearby property values have increased, your home could be worth more now. This means more equity, a lower LTV ratio, and better loan terms.
• Consider refinancing closing costs. Determine whether paying closing costs upfront provides better long-term savings than refinancing them.

Why You Should Remove MIP

Annual MIPs currently range between 0.15% and 0.75%, depending on your loan term, LTV ratio, and loan amount.

For example, a $350,000 FHA loan with an annual MIP rate of 0.55% would cost a total of $1,925 per year or $160.42 per month in mortgage insurance.

Eliminating your mortgage insurance premium lowers your monthly mortgage payment, which means extra money for your emergency savings, home improvement projects, or other purposes.

Or you can use it to prepay your loan principal and pay down your loan faster.

Talk to Your Lender to Explore Your Options

After learning how to remove FHA mortgage insurance in Texas, take time to evaluate whether the savings outweigh the costs.

If you have questions, contact our loan experts at Texas United Mortgage for one-on-one assistance. We’re ready to help you find the right solution that fits your financial needs.

Next, read our ultimate guide to getting an FHA loan to learn the whole process.