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How to Speed Up Your Mortgage Refinance

Editorial Note: Parts of this article were reviewed by a lender to ensure accuracy prior to publication. The overall conclusions, recommendations and opinions are the author's alone.

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

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Guide to Home Appraisals for Mortgages

Editorial Note: Parts of this article were reviewed by a lender to ensure accuracy prior to publication. The overall conclusions, recommendations and opinions are the author's alone.

There are many factors that can lead to a mortgage denial when you’re trying to buy a home. One of the most common things that can stand between you and an approval is an issue with the property’s appraisal.

But what is an appraisal? And why do home appraisals matter so much during the home buying process? This guide answers those questions and more.

What is a home appraisal?

An appraisal is a written estimate that details a professional appraiser’s opinion of a home’s value. When you buy a home, your mortgage lender will more than likely require a home appraisal before approving the loan.

“Appraisers are reporters of the market,” said Stephen Wagner, 2019 president of the Appraisal Institute in Chicago. “They interpret the actions of buyers and sellers in the marketplace.”

All 50 states require appraisers to be certified or licensed to provide appraisals to mortgage lenders who are federally regulated, according to the Appraisal Institute. Appraisers receive their credentials after passing an examination administered by their state’s appraisal board.

When choosing an appraiser, government-sponsored enterprise Fannie Mae has specific requirements for mortgage lenders. They need to select from professionals who not only meet the certification or licensing requirements, but also have experience in and knowledge of the local real estate market and the specific property type being appraised.

Many appraisers use the Uniform Residential Appraisal Report, the most common form used in real estate appraisals.

What do appraisers look for?

Before visiting a property, an appraiser gathers upfront information related to the property. Once they begin the appraisal assignment, they typically review the property’s:

  • Amenities
  • Condition
  • Interior
  • Structure
  • Upgrades

But not all appraisal assignments look the same, said John Brenan, vice president of appraisal issues with The Appraisal Foundation in Washington, D.C.: “Some require an appraiser to personally inspect the interior of a home. Some only require an appraiser to personally inspect the exterior of the home.”

The homebuyer doesn’t have to be present for the appraisal. In many cases, a real estate agent will provide access to the home if necessary, he added.

The U.S. Department of Housing and Urban Development (HUD) requires appraisals for FHA loans to be more in-depth than those for conventional loans. Appraisers hired by FHA lenders must establish an unbiased opinion of a home’s value and determine whether it meets the FHA’s minimum property standards — by inspecting the home’s foundation and major systems, for example.

The U.S. Department of Veterans Affairs follows a similar process for VA home appraisals. The appraiser must determine the value of the home and review the property’s condition to assess whether it meets the VA’s minimum property requirements.

Appraisers typically determine a home’s value by using one of three common methods:

  • The sales comparison approach, which involves reviewing recent home sales and homes currently for sale that are similar to the property being appraised. The appraiser makes adjustments to the home’s value based on its condition, features and quality.
  • The cost approach, which involves calculating what it would cost to build that same house on a similar lot, minus depreciation. This method can be helpful for appraisals on relatively newer homes, according to Brenan.
  • The income approach, which involves taking the rental income of the property being appraised, or a comparable property, to determine a value that would provide the rate of return that the typical investor would require for a similar home. As Brenan noted, this approach is typically used for commercial property appraisals.

The most commonly used method for real estate transactions is the sales comparison approach. When using this approach, appraisers consider several factors, according to the Appraisal Institute, which include:

  • Conditions of the sale
  • Economic characteristics
  • Expenditures made immediately after the purchase
  • Financing terms
  • Location
  • Market conditions
  • Non-property components of value
  • Physical characteristics
  • Property rights being transferred
  • Use and zoning

Homebuyers usually pay for an appraisal as part of their closing costs. An appraisal fee can run about $300 to $400, but it can vary depending on the state, property type, loan type and the complexity of the appraisal assignment. For example, the VA has a state-by-state fee schedule for home appraisals. The appraisal fee is $450 in Georgia and $525 in New York.

There isn’t a “shelf life” on appraisals, Brenan said. However, each lender has guidelines it follows that dictate how old an appraisal report can be for mortgage lending purposes.

Why appraisals matter to the homebuying process

An appraisal establishes a home’s value. This number is important to your mortgage lender because it affects the loan you need to purchase the home.

Lenders rely on a house appraisal to determine whether the sales price makes sense and to calculate the homebuyer’s loan-to-value ratio.

[An appraisal], as described by Wagner, “is a risk mitigation tool at that point, to make sure that somebody’s not paying too much for a property or that the lender isn’t going to lend too much against the property.

Put another way, a home appraisal is designed to ensure that the collateral for a mortgage — the house — is adequate enough to justify the loan amount, Brenan said. The appraisal also helps establish value in the event of a foreclosure sale, should the lender need to take the property back because the borrower defaulted on the mortgage.

Aside from mortgage approval, other reasons you might need an appraisal include:

Can you skip a home appraisal?

In certain circumstances, you may be able to sidestep the home appraisal requirement when getting a mortgage to purchase a home.

Conventional mortgage borrowers may be able to get what’s called a property inspection waiver (PIW) mortgage, which is a loan that goes through the underwriting process without an appraisal. It’s also known as an appraisal waiver mortgage.

With a PIW mortgage, the lender can use existing information about the property’s estimated value to originate a loan, rather than ordering a new appraisal. However, the homebuyer would need to supply a 20% down payment in most cases.

How to dispute a home appraisal

An appraiser’s opinion of value isn’t necessarily the end of the line, Brenan said.

If you’re not happy with your appraisal — for example, the home value comes in lower than expected — you have the option to dispute the appraiser’s findings.

Let’s say you’re looking to buy a home priced at $300,000 but the appraisal comes in at $250,000. After your lender has given you a copy of the appraisal report to review, you can request another appraisal if you’re not satisfied with the results. It’s helpful to provide any evidence you may have that disputes the appraiser’s findings, such as a recent comparable sale or missing square footage.

Keep in mind that your lender isn’t obligated to honor your request. But if it does, you’ll be responsible for the additional appraisal fee.

“If the borrower or a real estate agent or whoever wants the appraiser to consider additional information, go through the lender, share that information,” Brenan said. “The appraiser will review it and notify the lender if it warrants any type of change.”

If your lender decides to stick with the original appraisal or no changes occur after it’s reviewed, a few things can happen. Using the example above of an appraisal coming in lower than the sales price, you would either need to come up with the difference in cash or renegotiate with the seller on a lower price. Otherwise, the loan could be denied.

It’s also important to remember that although a house appraisal is part of your homebuying process and you’re responsible for paying the fee, you aren’t the appraiser’s client. In terms of a home purchase or refinance, the lender is required to order the appraisal and can’t accept an appraisal ordered by a borrower — “that is to avoid any possible bias or undue influence,” Brenan said.

Home appraisal vs. home inspection

While they both involve taking a critical look at a home, an appraisal and inspection aren’t the same.

An appraisal examines the elements and features that help determine the value of a home. But an inspection evaluates the home’s structure, interior and exterior to assess its condition and recommend any necessary repairs. Unlike appraisals in most cases, home inspections can be optional. Inspection fees range from about $300 to $500, though it can change based on a number of factors, such as the size and age of the home.

An appraiser is generally looking for things that impact value, such as the quality, design and floor plan, Wagner said.

“Appraisers do not inspect properties to the depth and level that a home inspector might, wherein as a home inspector is … testing plumbing and electrical and kind of almost seeing behind the walls, if you will,” he explained.

The bottom line

A home appraisal provides benefits for both homebuyers and mortgage lenders, Wagner said.

“In addition to valuation issues, they may find out things about the property that they might not have otherwise been particularly aware of,” he said.

For example, a home could be advertised as a certain size, but the appraisal showed that it’s actually smaller or larger than marketed.

“There’s a number of aspects of the physical characteristics of a property that may come to light that were not obvious to the buyer at the outset,” he said.

Lastly, since an appraiser is analyzing market information to arrive at a home’s value, there’s not much of a need to worry about bias.

“The appraiser is the independent, impartial, objective party in the entire transaction,” Brenan said. “The appraiser is the only one whose compensation does not depend on whether the deal goes through or not.”

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.

Crissinda Ponder
Crissinda Ponder |

Crissinda Ponder is a writer at MagnifyMoney. You can email Crissinda here

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FHA Mortgage Insurance: Explained

Editorial Note: Parts of this article were reviewed by a lender to ensure accuracy prior to publication. The overall conclusions, recommendations and opinions are the author's alone.

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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
BEST LOAN AMOUNTLTVANNUAL MIP
<=$625,500<=95.00%0.80%
<=$625,500>95.00%0.85%
>$625,500<=95.00%1.00%
>$625,500>95.00%1.05%
FHA MIP Chart for Loans Less Than or Equal to 15 Years
BEST LOAN AMOUNTLTVANNUAL MIP
<=$625,500<=90.00%0.45%
<=$625,500>90.00%0.70%
>$625,500<=78.00%0.45%
>$625,50078.01% - 90.00%0.70%
>$625,500>90.00%0.95%

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
740$96.67$144.14$3,500
720$116.67$144.14$3,500
700$131.67$144.14$3,500
680$163.33$144.14$3,500
660$205$144.14$3,500

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

10-22%

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

10-22%

78% LTV

15 years

More than 22%

No MIP

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.

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

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