FHA loans offer numerous advantages. These loans, backed by the U.S. Federal Housing Administration, feature a lower down payment requirement, sometimes as low as 3.5% of the property’s purchase price based on your FICO® credit score.
However, there are costs associated with these loans. Borrowers are responsible for both an annual and upfront Mortgage Insurance Premium (MIP) with an FHA loan. The positive news is that upon refinancing your existing loan into another FHA loan, you may qualify for a partial refund of the initial Mortgage Insurance Premium fee.
To determine the potential refund amount, check the FHA MIP Refund Chart.
Understanding FHA MIP Refunds
When using an FHA loan to buy a home, you’re responsible for two types of mortgage insurance premiums. First, the annual MIP, typically 0.55% of your loan amount. For instance, with a $400,000 loan, this equals $2,200 annually or around $183 monthly.
Secondly, there’s a one-time upfront MIP, equal to 1.75% of the loan amount, so for a $400,000 loan, it’s $7,000. However, if you refinance to another FHA loan within 3 years, you can get a refund on this upfront MIP payment. The refund amount depends on how soon you refinance – the quicker, the more you’ll get back. But if you don’t refinance within 3 years, no refund is given.
See What You Qualify For
Understanding the FHA MIP Refund
To determine the FHA MIP refund upon refinancing your FHA loan to another one insured by the Federal Housing Administration, the duration of your wait before refinancing plays a crucial role.
Upon refinancing within 12 months, you are entitled to a refund amounting to 58% of your initial upfront payment. In contrast, delaying the refinance for 3 years results in a mere 10% refund of the upfront payment.
It is important to note that the refund is not disbursed as cash but is credited towards the upfront MIP payment necessary for the new FHA loan during refinancing. Consequently, the refund diminishes the magnitude of the new MIP upfront payment. The FHA’s policy prohibits borrowers from receiving MIP refunds in cash.
The refund percentage, along with the subsequent reduction in the upfront MIP payment for the new FHA loan, decreases progressively as the duration of your wait for refinancing extends. Despite the enticement of a partial MIP refund, it is advisable not to rush into refinancing prematurely. If your existing loan features a low interest rate and you are content with its terms and monthly payments, it may be prudent to forgo refinancing, irrespective of the potential MIP refund.
FHA MIP Refund Chart 2024
Eligibility Criteria for FHA MIP Refunds
Not everyone is eligible for an FHA MIP refund. If you’re refinancing an FHA loan, here’s what you’ll need to secure your refund:
- Ensure you are up to date on mortgage payments.
- No foreclosures should be on your credit report.
- Refinancing an existing FHA loan is limited to another FHA mortgage for an MIP refund.
- Your FHA loan closure should be within the last 3 years.
Guide: How to Seek a Refund for FHA Mortgage Insurance Premium
You cannot independently request a refund for your upfront MIP payment. The process is managed by your lender, who will handle the refund. The refunded amount will be automatically credited towards the upfront MIP payment required when you refinance to your new FHA loan.
Calculating Your Refund for FHA Mortgage Insurance Premium
To calculate your potential FHA MIP refund, use this formula: Multiply your original MIP amount by the refund percentage. For instance, if you borrowed $400,000 with an upfront MIP fee of 1.75% ($7,000), and are refinancing 25 months later, you may qualify for a 32% refund. By multiplying $7,000 by 32%, you could receive a $2,240 refund to offset the MIP payment on your new FHA loan.
Key Takeaway
When considering refinancing, focus on securing a lower interest rate or a term that aligns with your requirements, rather than solely aiming for an MIP refund. Prioritize finding a loan that best suits your needs.
Ready to take the next step? Begin your loan refinance process now.
Reed Letson
Reed offers two decades of expertise as a mortgage broker, focusing on veterans and first-time home buyers. With a strong grasp of real estate and mortgage markets, he empowers clients with practical insights. Reed's passion is guiding clients to build wealth through real estate investments and financing solutions.