The Federal Housing Administration (FHA) makes home ownership possible for borrowers who might not otherwise be able to afford a home. FHA requires only a 3.5 percent down payment, so it’s ideal for those who lack the 20 percent down payment required for conventional mortgages who don?›ƒ?ªƒ?›t want to pay mortgage insurance, otherwise there are 5% Down Conventional Loans but they require higher credit scores. FHA-approved lenders originate loans based on the agency’s guarantee to repay the debt if the homeowner defaults. The mortgage insurance premium (MIP) is a feature of FHA loans consisting of an up-front fee and an annual fee the borrower pays in monthly installments. Borrowers can remove FHA’s MIP payments by paying down the principal loan balance during the first 11 years of the loan until you hit 22% equity or when the home hits a 78% loan to value (LTV) ratio. Keep in mind, FHA’s insurance remains in force for the loan’s entire term, even after the annual MIP is removed.

FHA determines when the borrower has reached the 78 percent LTV based on the lesser of the property’s sales price at purchase or the property’s appraised value at origination if the FHA loan was obtained by way of refinance. With home values on the rise over the past several months, a new appraisal of your home by a lender?›ƒ?ªƒ?›s approved appraiser can determine if you quality for a mortgage insurance cancellation.

To determine is you qualify for this savings without an appraisal, follow these 4 easy steps:

1. Find the initial loan amount of your FHA loan by referencing the HUD-1 statement provided to you at closing by the lender. The amount is located on the final page of the statement under loan terms.

2. Multiply the initial loan amount by 0.78. FHA automatically cancels MIP once the remaining loan balance has reached 78 percent of the initial loan amount on loans with repayment terms of more than 15 years and where the borrowers have made MIP payments for at least five years.

3. Check the remaining principal balance left on your FHA loan by referencing your most recent monthly mortgage statement. The amount will appear next to “principal,” “loan balance,” or a similar description.

4. Subtract the amount in Step 2, which is the amount you must attain, from the amount in Step 3, which is what you still owe. The difference between the two figures is how much more you have left to pay before you reach the 78 percent loan-to-value (LTV) required to cancel MIP.

5. Pay the amount calculated in Step 4 in a lump sum if you have been paying MIP for at least 5 years on your 30-year loan to cancel without providing a new appraisal.

An even more advantageous opportunity would be to refinance your loan in its entirety. With this option, if your LTV meets the required 78%, you may be able to qualify for a new loan with lower interest rates and no mortgage insurance premiums. For many, this is a significant cost savings.

Investigating and analyzing the most cost effective loan programs can be tricky. The best solution can easily be determined by using a professional Mortgage Loan Officer such as Adam Klawe at Eagle Home Mortgage. Using an experienced and knowledgeable professional can help you save money and time.


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