Advertiser Disclosure


Do You Really Need a Home Warranty?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

If you’re thinking about buying a house or recently became a homeowner, someone has probably tried to sell you a home warranty. Unlike homeowner’s insurance, home warranties cover the day-to-day working parts of your home — the stove you use to cook your egg-white veggie omelet, air conditioning to cool a home on hot summer days, or the plumbing that empties out the bubbles from a toddler’s toy-filled bath.

However, there are limits to what they cover, and they may or may not be a good fit for reasons we’ll discuss as we weigh the pros and cons of whether you really need a home warranty.

What is a home warranty?

If you’ve ever bought a used car, you may have been offered an extended warranty to cover some or all of the expense of major car parts that may nearing the end of their mechanical life. A home warranty works under the same principal, covering the working parts of your home that may be near the end of their functioning life.

The important thing to understand is that home warranties are not insurance, they are service contracts. In most cases the coverage is meant to service the covered items, not replace them. Although ultimately the coverage may cover the cost of replacing an air conditioner or dishwasher, you may have to pay a premium to have a technician come out and make that determination.

You can pay the entire premium upfront, but most warranty providers prefer to bill the annual premium in monthly installments. Unless you select a higher priced premium plan, you’ll also need to pay a service fee to a technician to verify any claims you request for repairs or replacement of covered items.

Home warranties are completely optional: unlike homeowner’s insurance, mortgage lenders don’t require that you purchase or maintain a home warranty.

What does a home warranty cover?

There are a lot of moving parts in a home, and all of them contribute to the comfort and safety of your day-to-day life. Even if your home is inspected by the most proficient home inspector around, what’s behind the walls or in the mechanical components of everything from your plumbing and air conditioning to your washer and dryer may not be visible.

The graph below gives you an idea of what a home warranty covers. These are all items that are not usually covered by homeowner’s insurance.

The items listed above are the most common ones covered by a regular plan. You might be able to cover the following by paying an extra premium for each component:

  • Pool/spa
  • Septic system
  • Water softener
  • Sprinkler
  • Well pump

Look at the fine print of each covered component to make sure you understand exactly what the warranty will pay for. For example, American Home Shield’s sample contract covers all components and parts on a garage door, except for the door itself and door track assemblies.

How much does a home warranty cost?

According to Consumer Affairs, home warranty premiums range from $300 to $600 per year. The cost varies based on where you live, and you can get an idea of where whether warranties run higher or lower in your state at sites like ReviewHomeWarranties or Consumer Affairs.

The entire premium may be prepaid for the entire year by the seller if a home warranty is being provided as an incentive to buy a home, but most providers will bill the cost of the plan monthly. That makes the average monthly cost $25 to $50 for home warranties in the $300 to $600 per year range.

If you get extra coverage for items that aren’t featured on the regular plan, expect to pay more for each item you add for coverage. You can also select specific “appliance” or “system” plans, if you want coverage for one or the other instead of both. There are other factors and costs that go into the price of your home warranty that will have an impact on how much you’ll spend.

Service fees

You’ll want to take a look at your policy to find out how much your home warranty deductible is. You may also see it called a “service fee” or “call fee.” The fee pays the technician that make the service call to see what’s wrong with whatever covered item you’re calling about.

You can choose a plan with the service fee built in, but the premiums for those plans will be more expensive. If you pick a regular plan, you’ll typically pay a service fee between $50 and $125. Service fees are additional expenses that above the cost of the monthly or annual premium payment for the warranty plan selected.

Downsides to buying a home warranty

There are many arguments against buying home warranties, especially since home warranty companies have historically been one of the “worst graded” categories on Angie’s List.

  • Your claim can be denied if the problems existed before. Think of a home warranty like an insurance policy. When something happens, you file a claim (referred to as a “service call”). An adjuster comes out to assess the damage and later submits their findings to the home warranty company, which renders a decision. That decision could be a denial of your claim. One of the most common reasons home warranty companies deny claims is due to pre-existing conditions, or problems that existed before you purchased the policy. The company may even require that you turn over a copy of the home inspection report to ensure that the issue wasn’t cited during the inspection.
  • You can’t pick your contractor. Warranty providers require that homeowners work with specific, pre-approved contractors. Homeowners may sometimes be disappointed in a long wait time for service or poor quality of service provided by these contractors, but they can’t fire them and pick their own.
  • You may get repairs when what you want is a replacement. The service technician will always try to repair the appliance or system first and replace it only if it is beyond repair. That can be a hassle.

How to shop for a home warranty

Negotiate a policy with the home seller. Your real estate agent is probably the best starting place for home warranty shopping. Home warranty companies often provide flyers and brochures at open houses, and tend to work with agents to help solicit their products. Sellers may offer to pay for one if the home for sale is older and hasn’t had recent upgrades.

Compare your options. There are a number of websites that provide comparison reviews of home warranty plans, as well as options to get quotes from several different companies based on the parameters you input. Once you’ve received some feedback, review them to determine how the total coverage stacks up with each offer. Look at how much the service fees are, what they cover, and what the maximums the warranty will pay for replacement.

Review your home inspection report to understand your needs. Your home inspection may give you an idea of how to shop as well. If the inspection indicates the appliances are newer and upgrades, but the air conditioning and plumbing system are older, you may just want to shop for the most competitive systems plan.

Vet companies carefully. According to Consumer Reports, most of the complaints the Better Business Bureau receives about home warranties relate to misunderstandings about what coverage is provided under their plans. This means you need to read the fine print about each covered item so you know exactly under what circumstances the item will be covered.

There are also limits to how much different plans pay out, so you may end up digging into your pocket to pay the difference for a replacement.

When it makes sense to purchase a home warranty

Home warranties can provide an extra financial buffer for homeowners, and may be a good fit in the following situations.

#1: You don’t have handyman skills

If you’re not mechanically inclined or if, as a renter, you used to call the landlord whenever the fridge made a weird noise, a home warranty will give you the comfort of calling someone trained to fix those things once you own a home.

There is always a service charge associated with visits to check a covered item, but it may be worth the cost if you obsess about whether the fridge is going to break down in the middle of the night.

#2: You’re on a tight budget without reserves for a major repair

If you’re a first-time homebuyer and had to use most of your funds to make a down payment and pay closing costs, you may not have a lot of reserves left over for a major purchase if something breaks down soon after you move in.

Although the warranty might not cover the entire expense of a new dishwasher or water heater, it may cover enough to keep you from having to use a credit card or hitting up a relative for a temporary loan.

#3: You’re buying an older home with older appliances and major systems

Not every seller updates their home’s components over the years, and although the home inspector may give you an idea of how old they are, they may be closer to the end of their natural life than you know. A home warranty will at least give you some insurance if some of the systems or appliances start having problems within the first year of buying your home.

When it doesn’t make sense to purchase a home warranty

Not everyone is a good candidate for a home warranty, and knowing that will help you allocate the funds to something more worthwhile.

#1: You’re buying a brand new home

When you have a home built, or buy a home that’s just been finished in a neighborhood, most of the appliances and systems are probably covered under the manufacturers warranties. For example, a standard 2-10 warranty offered through a builder covers you for defect over the following periods: a year for workmanship, two years for systems and 10 years on the structure. There’s really no need to spend the money on a home warranty for a newly constructed home.

#2: The seller is giving a credit toward new appliances or systems

It’s not uncommon for a seller to offer to pay some closing costs, so you have extra cash to pay for upgrades to items that are in need of upgrade. If the home inspector indicates that something like a water heater or air conditioner really is in bad shape, you may be better off asking for it to be replaced as part of the home purchase.

#3: You prefer to buy new appliances when the current ones go bad

If you prefer to buy a new car every two or three years rather than keeping an existing one running, you may have the same mindset about appliances and systems. Some homeowners prefer to the newest and best bells and whistles in their homes, making a home warranty unnecessary.

#4: You already have reserve funds for potential repairs

You can save on the expense of a home warranty and any related service calls by having money set aside for maintenance and repairs on your home, or allocate a certain amount of your budget every month to building a rainy day repair fund.

Final thoughts about home warranties

It’s never a bad idea as a first-time homebuyer to have a little extra insurance against unexpected home repair needs. You’ll probably find as time goes on that you’ll learn how to do easy DIY repairs like unclogging a garbage disposal or an annoying leaky faucet.

However, if you prefer to let someone else take care of any household repairs, or just don’t have the time or desire to learn how to do handyman-type jobs, a home warranty may be worth the money.

This article contains links to LendingTree, our parent company.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Denny Ceizyk
Denny Ceizyk |

Denny Ceizyk is a writer at MagnifyMoney. You can email Denny here

Compare Mortgage Loan Offers for Free

Home Purchase Quotes

Home Refinance Quotes

(It only takes 3 minutes!)

NMLS #1136 Terms & Conditions Apply

Advertiser Disclosure


How to Speed Up Your Mortgage Refinance

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.


The saying “time is money” is even more true when you’re refinancing your home to reduce your monthly payment. The sooner you complete a refinance, the sooner you’ll be able to enjoy the benefits of lowering your payment and improving your financial situation.

There are steps you can take to move the process along more quickly. We’ll discuss these as we explain how to speed up your refinance.

Why speed is important in a refinance

Interest rates change on a daily basis. Once you lock in your rate, the clock begins ticking. If you don’t complete the refinance within the lock timeline, you could end up paying extension fees or end up having to re-lock at a higher rate.

Rate locks are usually priced in 15-day increments, although different lenders may offer other timelines. The shorter the lock period, the better your rate should be. If you can complete your refinance within one of the shorter lock-in periods, you’ll end up with a lower rate, lower costs or both.

Tip No. 1: Know what you want to accomplish with the refinance

If you’re objective is to save money every month on your payment, the refinance process can be incredibly fast. The simpler your goal is for the refinance, the easier it will be for the lender to approve your loan.

If a lender sees that you’re saving money and improving your financial situation with a lower down payment — and that you have made all your payments on time — it already has a pretty good idea that you’ll make a new lower payment on time.

However, if you’re applying for a cash-out refinance to consolidate debt, that may be a red flag that you are overextended on credit because your job or income is unstable, prompting lenders to request more proof of income to make sure you can repay your loan.

Tip No. 2: Pick a streamline refinance option

One of the benefits of government-backed loan programs, such as those offered through the Federal Housing Administration (FHA) and Veteran Affairs (VA), is the ability to refinance under “streamlined” guidelines. These refinance programs don’t require any income verification, and they usually won’t require any appraisal.

They also don’t require a full credit report, and they only verify that you’ve made your current mortgage payments on time with a mortgage-only credit report. Because lenders don’t have to underwrite your income or an appraisal, the refinances can be completed very quickly.

If you have an FHA or VA loan and have made seven payments on time since you took out your mortgage, you are probably eligible for a streamline refinance option. The VA streamline program is more commonly called a VA Interest Rate Reduction Refinance loan (IRRRL), but it features the same income and appraisal flexibilities as the FHA streamline refinance.

Tip No. 3: See if you can get an appraisal waiver on conventional financing

When market values go up — as they consistently have for at least the past five years — conventional lenders may begin to offer appraisal waivers. Although you’ll still need to document your income and assets, conventional lenders may be able to offer you a waiver of your appraisal, which will significantly speed up your refinance process. It will also save you the cost of an appraisal, which is usually $300 to $400.

You may hear your loan officer talk about a property inspection waiver (PIW) or an automated collateral evaluation (ACE). These basically amount to a computerized system accepting the estimated value you input on your loan application as the appraised value for your refinance.

Appraisal waivers are usually only available on rate-and-term refinances, which are refinances paying off the balance of your loan to save money. If you are looking for a cash-out refinance to consolidate bills or make home improvements, chances are you’ll need a full appraisal.

Tip No. 4: Fill out an accurate and complete application

Take the time to fill out your loan application accurately. Be sure to provide contact information for your employer, your homeowners insurance company and a complete two-year history of your employment and addresses.

If you’ve applied for new credit accounts in the past 60 days, have a current statement handy in case the balance and payment haven’t yet appeared on your credit report. These may seem like minor things, but they can cause major delays if you don’t disclose them properly at the beginning of the loan process.

Tip No. 5: Have your basic paperwork ready to provide

Depending on the type of refinance for which you are applying, there may be very little your lender needs. However, there are some basics you should have handy to speed up the process, just in case.

  • Current month of pay stubs: If you aren’t doing a streamlined government refinance, this is usually the bare minimum a conventional lender will need.
  • Last year’s W-2: If you have high credit scores (above 720), you may not have to provide a W-2, but it depends on the type of income you receive. If you get overtime and commissions on top of a base salary, expect to provide two years’ worth of W-2s.
  • Current mortgage statement: This is needed to show that there are no late fees accruing. It also provides a snapshot of your current loan balance for your loan estimate preparation.
  • Two months of bank statements from a checking or savings account: Some lenders will only require one month. If you’re adding the closing costs to your loan balance, you may not need any bank statements at all.
  • Copy of your current homeowners insurance policy: Whether you include your homeowners insurance in your monthly payment or not, the lender will need this to calculate your total qualifying payment. It will also need to switch the lender information to show who your new mortgage company will be.
  • Current property tax statement: Again, this is required regardless of whether you have an escrow account. Your property taxes will need to be current, and the lender will need the yearly taxes to calculate your total qualifying payment.
  • Copy of your driver’s license or picture ID: This is needed to confirm your identity at your application and then again at your closing.

Tip No. 6: Apply with a digital or online refinance lender

You may see advertising or have a loan officer tell you about a digital or online refinance process. This generally means the lender doesn’t need any income or asset documentation to approve your loan, allowing the refinance to finished quickly.

That doesn’t mean they aren’t accessing your personal information in another way. New technology allows lenders to access your income and employment history through online databases. It can see your assets with “view-only access” to your banking accounts.

You generally have to work for a large employer to be eligible, and your bank accounts need to be with a large bank. You also need to be comfortable with giving your lender your log-in credentials for your bank for “read-only” access.

Tip No. 7: Stay at your current job

Your income and employment will be verified during the loan process and right before closing. Switching from a salaried to a commission position, or changing employers, will create delays in the process or prevent you from being able to complete the refinance at all.

Tip No. 8: Don’t make large deposits into your checking or savings accounts

If you are increasing your loan amount to cover your costs, you may not need to provide any bank statements at all. If you do need to provide bank statements, the first thing the lender will look for is large deposits.

If you received a large cash gift from a relative, or recently sold an asset such as a car or coin collection, avoid depositing the funds until after your transaction is complete to avoid having to provide documentation and explanations.

Tip No. 9: Provide only asset documentation you need for the loan

Refinance lenders only need enough documentation to approve your loan. If you have an extensive portfolio of stock funds, 401(k) plans or several different asset accounts, you don’t need to disclose them if you aren’t going to be liquidating them to complete your refinance.

Tip No. 10: Communicate any changes to your loan officer immediately

Sometimes a new job opportunity is too good to pass up, or a car breaks down requiring you to buy a new one. The most important thing is to immediately notify your loan officer of any changes to your employment, credit or assets so they can develop a game plan to prevent any unnecessary delays finishing your refinance.

Things that could slow down the refinance process

Sometimes situations can arise that you have no control over in the refinance process. You’ll need to make quick decisions to keep the refinance moving if you run into any of them.

Your appraisal comes in lower than estimated

A low appraisal could affect the viability of a refinance. This is especially true with conventional mortgages, where the interest rates are influenced by how much equity you have. Even a 5% difference in your estimated value could result in a higher rate, higher costs or both.

You can also dispute a home appraisal by providing recent, similar sales you think better represent your home’s value. If your value comes in lower, reach out to your loan officer to have a new break-even point analysis done to make sure the refinance still make sense. This calculation divides the total closing cost of your refinance by the monthly savings to determine how long it takes to recoup the costs. Getting your refinance done quickly isn’t beneficial if it takes you longer to recoup the costs than you plan to live in the home.

One caveat: Don’t give the appraiser your opinion about what you think your home is worth. There are very strict laws in place to make sure appraisers have the independence to evaluate your home’s worth without any pressure from an interested party. An appraiser can refuse to complete your appraisal, creating delays and potentially causing the lender to decline your loan.

Some states consider it a felony to influence a home appraiser, so it’s best to let the appraiser do the inspection, then dispute the value with recent sales if you don’t agree with the appraiser’s opinion.

You have a second mortgage you want to keep

If you have a home equity loan or a home equity line of credit (HELOC), you may want to keep it open and just refinance your first mortgage. This will require an extra approval process called “subordination” or “resubordination.”

Your second mortgage lender will need to agree to being “subordinate” to your new first mortgage. That means your first mortgage lender wants to have first rights to foreclose on your home if you default.

Home equity loan and HELOC lenders will usually have a process in place to approve subordinations quickly, but some have long turn times that may force you to lock in your mortgage for a longer time period.

Final thoughts about speeding up your refinance

Be sure to shop around to get the best rate possible. Once you’ve found your best deal, lock it in and be prepared to act quickly with any documentation requests from your loan officer and loan processor.

Taking all these steps will help speed your refinance up so that you can begin enjoying the benefits of a lower rate and monthly payment.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Denny Ceizyk
Denny Ceizyk |

Denny Ceizyk is a writer at MagnifyMoney. You can email Denny here

Compare Mortgage Loan Offers for Free

Home Purchase Quotes

Home Refinance Quotes

(It only takes 3 minutes!)

NMLS #1136 Terms & Conditions Apply

Advertiser Disclosure


FHA Mortgage Insurance: Explained

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.


This article contains links from LendingTree, the parent company of MagnifyMoney.

One of the benefits of current mortgage lending guidelines is the ability to buy a home with much less than a 20% down payment: this is made possible by mortgage insurance.

The FHA loan program allows FHA-approved lenders to make loans with more flexible minimum requirements, including down payments as low as 3.5%. Because the mortgage insurance is backed by the U.S. government to protect lenders against losses from defaults, FHA mortgage insurance lenders can take more risks to help first time homebuyers qualify for home loans.

We’ll explain what FHA mortgage insurance is, as well as some pros and cons and comparisons to other types of mortgage insurance in this article.

What is mortgage insurance?

Protection for lenders. Mortgage insurance is not the same as homeowners insurance, which protects you against losses such as fire or theft — mortgage insurance only protects lenders in the event that you default on your mortgage. It also allows you to buy a home with less than a 20% down payment, a fact that many homebuyers don’t realize.

More than half the consumers who consider buying a home don’t think they can come up with enough money for a down payment, according to a 2017 study by the Urban Institute. The good news is once they begin doing a little research, they find they can buy a home with as little as 3% for conventional loans, or 3.5% for FHA loans, because of mortgage insurance.

An added cost for borrowers. The cost of mortgage insurance varies based on the type of loan you apply for. With conventional loans, the cost is usually 0.15% to 1.95% of your loan amount, paid monthly. FHA loans require an upfront mortgage insurance premium (UFMIP) of 1.75%, and a monthly mortgage insurance premium (MIP) that ranges from .45% to 1.05% of your loan amount, paid monthly.

Mortgage insurance adds an extra expense to your monthly payment, and depending on what type of loan you are taking out, it may or may not be cancellable. There are two types of FHA mortgage insurance, and we’ll explain those next.

What is FHA mortgage insurance?

When you take out an FHA loan, there are two types of mortgage insurance that you’ll need to pay. One is called the upfront mortgage insurance premium (UFMIP) and the other is the annual mortgage insurance premium (MIP).

Upfront mortgage insurance premium

The UFMIP is paid in a lump sum equal to 1.75% of your loan amount. It can be paid out of your pocket or by the seller, but is usually financed on top of your loan amount. Below is an example of how it would be charged.

If you borrow $200,000 at a 3.75% rate and add the cost of upfront mortgage insurance to your loan, your total loan amount will be $203,500. That’s important to understand, because it means your monthly payment will be slightly higher for as long as you have your loan.

Let’s look at how that impacts your monthly payment as well. Without the cost of mortgage insurance, your monthly payment would be $926.63 — with it, you’d add $15.81 to your monthly bill, bringing the payment $942.44. You can use this FHA mortgage calculator to figure out how much your mortgage insurance will be.

You can get a refund on a portion of the premium if you refinance to another FHA loan within seven years of taking out your mortgage, but you’ll have to pay a new premium to complete the refinance. This takes some of the pain out of being charged the UFMIP everytime you refinance to a new FHA loan.

Mortgage insurance premium

The other type of mortgage insurance required on an FHA loan is called the mortgage insurance premium (MIP). The MIP is an annual charge, but is paid monthly as part of your total mortgage payment; the exact amount depends on your down payment.

To calculate the MIP on the example above with a minimum 3.5% down payment, you would multiply the $203,500 loan amount by a factor of 0.85% and divide it by 12. The result is $144.14 per month added to the $942.43, for a total principal interest, and mortgage insurance payment of $1086.59.

The chart below shows the current MIP rates based on loan term, loan amount and down payment.

FHA MIP Chart for Loans Greater Than 15 Years
FHA MIP Chart for Loans Less Than or Equal to 15 Years
>$625,50078.01% - 90.00%0.70%

Source: FHA Handbook

What are the advantages of FHA mortgage insurance?

Gives lenders the flexibility to accept lower down payments. The extra insurance you pay gives the FHA an insurance policy against defaults, and allows them to absorb the extra risk of their flexible approval guidelines.

Easier to qualify for a home loan. Most borrowers apply for FHA loans to take advantage of the easier qualifying requirements. Minimum requirements for an FHA loan include a score of 580 for a 3.5% down payment, and a debt-to-income ratio of 43% that can be exceeded in some cases. (Your debt-to-income ratio is a measure of how much total debt you have compared to your pre-tax income.)

Credit score won’t influence insurance cost. Regardless of whether your credit scores are 780 or 580, the mortgage insurance premiums remain the same. This means a much lower payment than a comparable loan with mortgage insurance on a conventional loan, which we will explain later.

What are the disadvantages of FHA mortgage insurance?

Adds to the cost of the monthly payment. FHA mortgages cost more in total mortgage insurance expenses than any other type of low down payment loan. The upfront premium and the monthly MIP can add significantly to the total amount you pay over 30 years.

In the example provided for the $200,000 FHA loan above, adding the 1.75% UFMIP to your loan amount increases your payment by $15.81 per month. That may not seem like much, but over the 360 months you make payments on a 30-year loan, that’s an extra $5,691.60.

You’ll see the evidence of this when you look at the APR on an FHA loan versus your note rate. The APR is an expression of the total cost of a loan over its lifetime, and because you can’t avoid the monthly mortgage insurance premium if you make a minimum down payment, the cost over the life of the loan can be substantial.

You can’t get rid of it — even if you build up significant equity. The other big disadvantage of MIP and financed UFMIP is you pay it for as long as you have your loan if you make a minimum down payment, regardless of how much equity you have down the road. As we noted above, FHA mortgage insurance is required no matter how much down payment you make, making it very expensive compared to a conventional mortgage that doesn’t require any mortgage insurance if you can come up with 20% or more.

Conventional mortgage insurance is called private mortgage insurance (PMI) and can be canceled if you have enough equity in your home. The lender might require an appraisal to confirm the value increase, but it is money well spent if you end up getting rid of the extra amount PMI adds to your monthly mortgage payment.

How does FHA mortgage insurance differ from conventional PMI?

There are three key differences between FHA mortgage insurance and PMI:

  • Conventional loans require PMI if you have less than 20% equity in your home.
  • Conventional loans only require one type of mortgage insurance (PMI), while FHA loans require two types in the form of UFMIP and MIP.
  • PMI is very much influenced by credit scores and down payment amount, and by other factors like the number of people borrowing, the type of property being purchased, and the city or county where the property is being purchased.

The graphic below shows the major differences between FHA and conventional mortgage insurance options.

3 ways to eliminate MIP

There is no way to avoid paying the UFMIP or MIP on an FHA loan, regardless of how much money you have to put down. There are really three ways to completely eliminate MIP on your current FHA loan:

  • refinance to a conventional mortgage
  • completely pay your loan off
  • make a 10% down payment and wait 11 years

1. Refinance to a conventional mortgage to remove MIP

If you have built up 20% equity in your home, or have the funds to pay your loan balance down to 80% of the value of your home, refinancing to an FHA loan will eliminate MIP. Check your credit score before you go down this path just in case the appraisal shows you don’t have enough equity to avoid private mortgage insurance.

The premiums on PMI for conventional loans are heavily impacted by credit score, and if your scores are 680 or lower, you may want to get a cost quote from a loan officer before you spend the money on an appraisal for a conventional mortgage. Conventional mortgage rates also tend to run slightly higher than FHA mortgage rates, so be sure you do a cost comparison of the rates for each type of refinance.

The chart below shows the impact your credit score have on PMI vs FHA MIP for the same $200,000 loan option we reference earlier.

PMI Costs on Conventional Loan vs. FHA Loan

FICO ScoreMonthly PMIFHA Monthly MIPFHA upfront MIP

2. Pay your loan off

If you have the means to completely pay your mortgage off, you can eliminate MIP. Obviously you have to evaluate the pros and cons of using your resources to pay your mortgage off. If you’ve come into a large windfall of cash, it’s best to consult with a financial advisor to determine whether paying off your home loan balance is the best decision for you.

3. Make a 10% down payment and wait 11 years

Although this option doesn’t eliminate MIP, it does give you a countdown to a date when it will automatically drop off. If you have the resources to make a down 10% or higher down payment, MIP will be canceled after 11 years.

Removing MIP on loans closed before June 3, 2013

One of the benefits of conventional PMI is it automatically drops off after you’ve made payments to 78% of the value of your home when you purchased it. Up until June 3, 2013, the same was true of FHA loans.

Unfortunately, FHA changed the MIP cancellation guidelines for loans closed after June 3, 2013. The chart below shows how long you’ll need MIP if you current loan was closed before June 3, 2013, based on the down payment and term of your loan.

Loan Term

Original Down Payment

MIP Duration

20, 25, 30 years

Less than 10%

78% LTV based on original purchase price(5 years minimum)

20, 25, 30 years


78% LTV based on original purchase price(5 years minimum)

20, 25, 30 years

More than 22%

5 years

15 years

Less than 10%

78% LTV

15 years


78% LTV

15 years

More than 22%


Final thoughts about FHA mortgage insurance

If you have credit scores below 680, and need some extra flexibility to get approved, FHA may be your best bet to get home loan financing. You won’t be penalized for a lower credit score with MIP, and you can always refinance your loan to conventional financing down the road if your credit score improves.

Pay your credit on time, and consider working with a credit repair company if you want to improve your scores to the point where conventional PMI will save you money.

The information in this article is accurate as of the date of publishing. 

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Denny Ceizyk
Denny Ceizyk |

Denny Ceizyk is a writer at MagnifyMoney. You can email Denny here

Compare Mortgage Loan Offers for Free

Home Purchase Quotes

Home Refinance Quotes

(It only takes 3 minutes!)

NMLS #1136 Terms & Conditions Apply