FHA Mortgage Insurance is a paid, in part, on a monthly basis within an FHA borrower’s mortgage payment. While this is not a permanent cost, there are a two benchmarks that must be reached before FHA monthly mortgage insurance disappears from an FHA monthly mortgage payment.
The FHA loan balance must reach 78% of the original purchase price or appraised value at the time the home was purchased (whichever was lower).
Unlike a Conventional Mortgage where mortgage insurance is not required once the loan equals 80% of the home’s value, FHA regulations require that an FHA loan reach a loan to value ratio of 78% before monthly mortgage insurance can be eliminated. In addition, the loan to value measurement of 78% is not based off of the homes market value. It is based off of the homes original purchase price or the appraised value – whichever was lower at the time of purchase.
Five years must pass from the date of purchase.
A homeowner must be at least 5 years past the date they purchased their home with an FHA loan in order to be eligible for the elimination of their monthly mortgage insurance payment. Even if the loan balance is paid down to 78% of the original purchase price/ appraised value, monthly mortgage insurance will still be a part of the monthly payment until the 5 year requirement is met.
Important Notice: The above referenced guidelines refer to 30 year FHA loans only.
Loans amortized over 15 years or less with original loan to value ratios greater than or equal to 90% do not have the 5 year requirement however they still have the 78% loan to value requirement.