If you were a first-time home buyer, had less-than-ideal credit, or owed a lot of debt while home shopping, then you may have chosen an FHA loan rather than a regular conventional mortgage.

But while this type of mortgage — insured by the Federal Housing Administration — can make buying a home easier for many Americans, it also comes with a major drawback: FHA mortgage insurance premiums.

This insurance not only increases the up-front closing costs of your loan, but it also comes with an annual fee that’s spread across the year, increasing your monthly payments as a result. It can also be impossible to remove — but it is possible in some cases.

Are you tired of paying for MIP on your FHA mortgage loan? Here’s everything you need to know about removing FHA mortgage insurance, including when doing so might be a good idea.

In this article:

• What is FHA mortgage insurance?

• Step-by-step guide on how to remove FHA mortgage insurance

• How much does FHA MIP cost?

• What happens after removing your FHA MIP?

• Should you eliminate FHA MIP?

• FAQs

An FHA mortgage insurance premium (MIP) is a type of mortgage insurance that is required on FHA loans. Like other forms of mortgage insurance, it is designed to protect FHA-approved lenders against losses if you fail to make your monthly payments. (Essentially, if you default on your loan, your mortgage insurance will repay your lender for a portion of the money it lost.)

The benefit of FHA mortgage insurance is that it lessens the risk FHA lenders take on with borrowers. This often allows them to take on borrowers with less-than-perfect credit scores or smaller down payments than other loan programs are able to accept.

FHA mortgage insurance premiums come in two forms: an up-front premium, which is paid at closing, and annual premiums, which you’ll pay as part of your monthly mortgage payment. The cost of each is laid out below:

• Up-front MIP: 1.75% of your total loan amount

• Annual MIP: Varies from 0.45% to 1.05% of the loan amount, depending on the term, size, and loan-to-value (LTV) ratio of your home loan

In most cases, FHA mortgage insurance lasts for the life of the loan. But if you make a down payment of 10% or more, it may only last for 11 years.

Paying the mandatory FHA mortgage insurance is one of the biggest drawbacks for homeowners with FHA loans. If you’re eager to remove the extra burden, here’s a step-by-step guide on how to do it.

You might qualify to eliminate your FHA mortgage insurance premium automatically and without refinancing.

This is possible if one of these two scenarios applies to you:

Your loan origination date was between Jan. 1, 2001, and June 2, 2013. In this case, your MIP will be canceled when you reach a loan-to-value ratio of 78% or have 22% equity in your home.

Your loan origination date was June 3, 2013, or later, and you made a down payment of at least 10%. In this case, your MIP will be canceled after 11 years. (For down payments of less than 10%, you’ll pay mortgage insurance for the life of the loan unless you refinance.)

If you don’t meet the requirements for automatic MIP removal after reaching 11 years or 22% equity, then you’ll need to refinance your FHA loan to get rid of mortgage insurance.

You can do this using several loan types, including a conventional loan, a USDA loan, or a VA loan, though the latter two are reserved for specific borrower types (USDA loans are only for borrowers in rural parts of the country, while VA loans are just for veterans and military members). For most people, refinancing from an FHA loan into a conventional loan will be the most suitable choice.

To qualify for a conventional loan with most mortgage lenders, you’ll typically need a 620 credit score and a debt-to-income ratio of 45% or less. You will also need at least 20% equity in your home (anything less than this typically requires its own type of mortgage insurance called private mortgage insurance, or PMI).

If you can't qualify for MIP cancellation or refinancing and are struggling to keep up with your FHA mortgage payments, contact your lender. They can discuss potential solutions with you. This might include modifying your loan, which allows you to change the terms of your loan without refinancing, or you might be able to put your mortgage loan in forbearance. This gives you a temporary pause or reduction on payments while you get back on your feet.

In some cases, you might also be able to explore an FHA Streamline Refinance, which lets you refinance into a new FHA loan. Since this new loan would likely have a lower balance than your first one, it may qualify you for a lower MIP rate, which could reduce your monthly payment as well.

When you take out an FHA loan, you must pay an up-front mortgage insurance premium worth 1.75% of the original mortgage principal at closing, plus an annual MIP, which is divided out among your monthly mortgage payments. The cost of your annual MIP will vary depending on your mortgage size, term length, and loan-to-value ratio.

Let’s say you borrow $150,000 to purchase your home. In this case, you’ll pay an up-front mortgage insurance premium of $2,625 at closing and annual MIPs of anywhere from 0.45% to 1.05% of the total mortgage — so, around $675 to $1,575 each year (or $56 to $131 per month).

The most noticeable impact of removing your FHA mortgage insurance is that you’ll have a lower monthly mortgage payment. With this extra room in your budget, you could put more cash toward an emergency fund or start beefing up your retirement savings. You could also put those savings back into your home, aggressively paying down the principal on your mortgage, or use it to pay for home improvements that increase your home’s value.

In two scenarios, you can automatically eliminate FHA mortgage insurance from your loan (see eligibility criteria above). If you fit into those parameters, and removing insurance is free or charge, then there’s no downside to it. You’ll simply enjoy fewer costs and lower monthly payments.

If you don’t fall into those two categories, though, you’ll need to think carefully about whether refinancing to remove your FHA mortgage insurance is the right move. For one, you’ll need to either meet VA or USDA loan eligibility requirements to qualify or, in the case of conventional loans, have at least a 22% equity stake in your home to avoid paying for private mortgage insurance.

Beyond this, refinancing also comes with fees. According to Freddie Mac, the typical refinance costs anywhere from 3% to 6% of the total loan amount, so on a $200,000 balance, you’d pay between $6,000 to $12,000 just to refinance. You’ll want to run the numbers and determine if removing MIP would save you this much (and ideally more) in the long run. If it won’t, or if you don’t plan to be in the home very long, then keeping your loan as-is might be the better move.

If you’re unsure, talk to a loan officer about your options. They can walk you through the math and ensure you’re making the right move for your goals and budget.

What is the difference between MIP and PMI?

Mortgage insurance premium (MIP) and private mortgage insurance (PMI) are both insurance policies that protect lenders in case you default on your mortgage. The main difference between the two is that PMI applies to conventional loans with less than 20% down payments, while MIP is administered by the Federal Housing Administration and applies specifically to FHA loans.

It may be. If you take out a conventional loan but put down less than 20%, lenders will typically require you to pay private mortgage insurance (PMI) to mitigate their risk in case you default on the loan. However, once you’ve built up enough equity in your home — usually when the loan-to-value ratio reaches 80% — you can request that the PMI be canceled. For FHA loans, mortgage insurance is mandatory regardless of your down payment amount. You’ll pay it both upfront and as part of your monthly mortgage payment.

If you don’t qualify to remove FHA MIP and can’t refinance into a conventional loan, you could possibly reduce your MIP with an FHA Streamline Refinance. This program allows you to refinance your FHA loan into a new FHA loan so you can save money. You’ll probably still have to pay MIP, but it could be more affordable than with your original mortgage.

If you made at least a 10% down payment upon buying the house, you can cancel MIP after 11 years have passed on your loan. Your MIP might also be cancellable if it was originated prior to June 3, 2013, and meets other conditions. Otherwise, you will need to refinance into a non-FHA loan in order to remove MIP from your monthly payments.

This article was edited by Laura Grace Tarpley.