Mortgage Insurance Question

LaBellaVita23 · December 2012

My Husband and I bought a house last year using an FHA loan. I know we have to pay mortgage insurance for at least 5 years and until we have 20% equity in the house (which based on minimum payments would be 10 years). I'm trying to figure out a payment plan that would get us to the 20% at exactly 5 years so that we don't have to pay any extra in mortgage insurance. We currently are making extra payments but I want to ensure they are enough.

My question is this: is the 20% based on the cost of the home or is it 20% of the loan paid off? So if we bought a 100k house, would the insurance disappear when we hit 80k left on the principle? Or would it disappear when we hit 20% of the loan paid off?

I tried looking on HUD's website but I couldn't find the answer and our mortgage paperwork is in a safe at my ILs house so I don't have access to it at the moment. Thank you!!

LoveKiss · December 2012

When we were considering a 203k loan (another type of Federally-backed home loan), it was explained to me as an issue of the loan to value ratio. In other words, you need to have invested 20% of the assessed value of the house. So in 5 years, if the house you purchased for $100k has an assessed value of $110k, you will need to have a loan payoff amount equal to or less than $88k. Conversely, if your $100k house has decreased in value to $90k at that time, you will need to have a loan payoff amount equal to or less than $72k.

lil_jen051708 · December 2012

I'm not sure of the answer but you might check your loan documents. I'm thinking that you might have to hit 78% of the loan to value for FHA loans (not 80%). It should spell it out for you a little better than the Internet. You might have to pay for an appraisal but you could also call your mortgage broker.

ermaderma · December 2012

lil_jen051708:
I'm not sure of the answer but you might check your loan documents. I'm thinking that you might have to hit 78% of the loan to value for FHA loans (not 80%). It should spell it out for you a little better than the Internet. You might have to pay for an appraisal but you could also call your mortgage broker.

Yes, this is what we were told as well. We ended up going with a conventional loan though.

Jashley05 · December 2012

Yes, it is based on the home value. When we closed our loan officer said it would be a good idea to look at refinancing into a conventional loan in about a year or so if home prices keep climbing.

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