This used to be an easy question to answer, but over the last few months it has become quite a bit more difficult. In 2000, the Department of Housing and Urban Development (HUD) announced that any borrower with an FHA mortgage could have their mortgage insurance removed once they had at least 22% equity in their homes. Later, there were some changes which added a 5 year window, but still allowed the insurance to be removed.

But as of June 3 of this year, mortgage insurance may no longer be removed for borrowers who have less than 10% to put down at the time of purchase. So if you take advantage of the low down payment options associated with FHA loans, you may not be able to get rid of mortgage insurance without refinance.

And for those borrowers who do put at least 10% down when they buy a house, there is an 11 year waiting period. So if you put 15% down, and have a 22% ownership in your home by year 5, under the new regulations you would still have 6 years to wait before you can request the insurance be dropped.

But if you are in a situation where you are looking to purchase a home with a low down payment, don’t fret. The mortgage insurance does not account for a large portion of your payment, it can be tax deductible, and there are options down the road which could allow you to refinance into a mortgage without insurance. So while the new guidelines are certainly not good news, the ability to buy a house with a smaller down payment, credit issues, or higher debt to income ratios, usually outweigh the small added cost.

For more information on FHA mortgages and their associated insurance, please contact me. And if you have anything to add about mortgage insurance on FHA mortgages, please leave a comment.