FHA loans require mortgage insurance for the life of the loan in most cases

Unlike conventional mortgages, where you can stop paying private mortgage insurance (PMI) once you reach 20 percent equity, FHA loans work differently. The mortgage insurance on an FHA loan does not automatically drop off. Most borrowers pay it for the entire loan term — 15, 20, or 30 years — regardless of how much equity they build.

There is one exception: if you put down 10 percent or more at closing and took out your loan after June 3, 2013, you can remove the mortgage insurance after 11 years of payments. If you put down less than 10 percent, the insurance stays for the life of the loan. This is a hard rule, not something you can negotiate away.

The only real way to stop paying FHA mortgage insurance is to refinance into a conventional loan once you have enough equity and your credit and income may have access to. That is the path most borrowers take when the insurance cost becomes too high.

Key Takeaways

  • FHA mortgage insurance cannot be removed before 11 years unless you refinance into a conventional loan.
  • If you put down 10 percent or more, insurance drops after 11 years; if you put down less than 10 percent, it lasts the entire loan term.
  • Refinancing to a conventional loan is the only way to remove insurance before the 11-year mark.
  • You need at least 20 percent equity and a credit score typically of 620 or higher to refinance conventionally.

When FHA mortgage insurance automatically stops

If your down payment was 10 percent or more and your FHA loan closed after June 3, 2013, the mortgage insurance premium (MIP) drops off automatically after you have made 11 years of on-time payments. You do not have to request this — your lender will remove it from your monthly payment once the 11-year mark passes.

The catch: you must have made all payments on time. A single late payment restarts the clock. Also, this only applies to loans closed after that June 2013 date. If your FHA loan is older, the insurance is permanent unless you refinance.

If you put down less than 10 percent, there is no removal date. The insurance stays for 30 years (or whatever your loan term is). This is the trade-off for getting into a home with a smaller down payment.

Refinancing to a conventional loan to remove insurance

Refinancing is the most common way borrowers shed FHA mortgage insurance before the 11-year mark. When you refinance, you are paying off your FHA loan with a new conventional loan. The new loan does not carry FHA insurance — it may carry PMI, but that PMI can be removed once you hit 20 percent equity.

To refinance, you typically need at least 20 percent equity in your home. If your home is worth $300,000 and you owe $240,000, you have 20 percent equity and can refinance. Your lender will order an appraisal to confirm the home value. If the value has dropped since you bought, you may not have enough equity yet.

You also need a credit score of 620 or higher (most lenders prefer 640 or higher) and a debt-to-income ratio that the conventional lender will accept. Your income and existing debts matter. If you have taken on new car loans or credit card debt since getting the FHA loan, that can hurt your refinance chances.

Refinancing costs money — typically 2 to 5 percent of the new loan amount in closing costs. If your FHA mortgage insurance premium is low, it may take years of savings to break even on the refinance cost. Use a refinance calculator to compare the cost of refinancing against the cost of keeping the FHA insurance.

How to know if you have enough equity to refinance

You need to know your home's current value and what you still owe on the loan. Your loan balance is on your monthly statement. The home value is trickier — you can get a rough estimate from Zillow or Redfin, but lenders require an official appraisal, which costs $300 to $500.

The math is straightforward: if your home is worth $300,000 and you owe $240,000, your equity is $60,000, which is 20 percent. You can refinance. If you owe $250,000 on that same home, you have only 16.7 percent equity — not enough for most conventional loans.

Some lenders offer cash-out refinances, where you borrow more than you owe and take the difference in cash. This lowers your equity percentage, so it is harder to may have access to. A rate-and-term refinance (where you borrow exactly what you owe) is easier to get approved for.

The cost of FHA mortgage insurance versus refinancing

FHA mortgage insurance has two parts: an upfront premium (usually rolled into your loan) and an annual premium paid monthly. The monthly premium ranges from roughly 0.4 to 0.85 percent of your loan balance per year, depending on your down payment and loan term. On a $240,000 loan, that could be $80 to $170 per month.

Refinancing costs 2 to 5 percent of the new loan amount upfront. On a $240,000 refinance, that is $4,800 to $12,000. If your FHA insurance is $100 per month, you would need 48 to 120 months (4 to 10 years) of savings to break even. If you plan to stay in the home longer than that, refinancing makes financial sense.

Interest rates matter too. If rates have dropped since you got your FHA loan, refinancing saves you money on interest even before you factor in the insurance removal. If rates have risen, refinancing may not make sense unless the insurance savings are large.

What happens if your home value drops

If your home loses value after you buy it, you may end up underwater (owing more than the home is worth) or with very little equity. In this case, you cannot refinance to remove the FHA insurance, because conventional lenders will not lend more than 80 percent of the home's value.

If you are underwater, you are stuck with the FHA insurance until either the home value recovers or you wait out the 11-year mark (if you put down 10 percent or more). There is no workaround. You cannot force a refinance, and you cannot remove the insurance early.

If you have some equity but not 20 percent, you have a few options: wait for the home to appreciate, wait for the 11-year mark to pass, or make a large lump-sum payment to your principal to reach 20 percent equity faster. The lump-sum approach only makes sense if you have the cash and the interest rate on your FHA loan is high.

Frequently Asked Questions

Can I remove FHA mortgage insurance by paying down my loan faster?

No. The removal rules are based on time (11 years) or equity (20 percent at refinance), not on how fast you pay. Paying extra principal gets you to 20 percent equity sooner, which lets you refinance sooner, but it does not remove the insurance on the FHA loan itself.

What if I put down exactly 10 percent — do I get the 11-year removal?

Yes, if your loan closed after June 3, 2013. The 11-year removal applies to loans with 10 percent down or more. Below 10 percent, the insurance is permanent. Check your loan documents to confirm your down payment percentage.

Will refinancing hurt my credit score?

A refinance will cause a small, temporary dip in your credit score because the lender pulls a hard inquiry and opens a new account. The dip usually recovers within a few months. The benefit of removing the insurance often outweighs this short-term impact.

Can I remove just the mortgage insurance and keep the FHA loan?

No. FHA insurance and the FHA loan are linked. You cannot separate them. Your only option to remove the insurance before the 11-year mark is to refinance into a different loan product entirely.