How to Remove FHA Mortgage Insurance
(And Why It's Not as Simple as You Think)
Here's a conversation that happens more often than it should: A homeowner has been paying on their FHA loan for several years. They've built up equity, maybe their home has gone up in value, and they figure it's time to remove FHA mortgage insurance from their monthly payment. So they call their loan servicer — and get the bad news.
"Sorry, you can't cancel your mortgage insurance on this loan."
It's a frustrating moment, and it catches a lot of people off guard. Many borrowers were never clearly told how FHA mortgage insurance premium (MIP) works when they closed on their home. Some were led to believe it would drop off automatically, like conventional PMI does. That's not how it works — and understanding the actual rules can save you thousands of dollars in the long run.
How FHA Mortgage Insurance Premium (MIP) Actually Works
FHA loans come with two types of mortgage insurance, both charged by the Federal Housing Administration:
Upfront MIP (UFMIP)
This is a one-time charge of 1.75% of your loan amount, due at closing. Most borrowers roll it into the loan balance rather than paying it out of pocket. On a $300,000 loan, that's $5,250 added to what you owe.
Annual MIP
This is the charge that shows up in your monthly payment. For most borrowers, it's currently 0.55% of the loan balance per year, divided into 12 monthly installments. On that same $300,000 loan, you'd pay about $137.50 per month.
Here's the part that surprises people: if you took out your FHA loan after June 3, 2013, and put down less than 10%, your annual MIP stays on the loan for its entire life. It doesn't matter how much equity you build. It doesn't matter if your home doubles in value. The MIP stays until you pay off the loan, sell the home, or refinance into a different loan type.
If you put 10% or more down at closing, MIP drops off after 11 years. But most FHA borrowers put down the minimum 3.5%, which means the life-of-loan rule applies to them.
FHA MIP vs. Conventional PMI: A Side-by-Side Comparison
The confusion usually comes from mixing up FHA mortgage insurance with private mortgage insurance (PMI) on conventional loans. They're both forms of mortgage insurance, but the rules are very different.
| Feature | FHA MIP | Conventional PMI |
|---|---|---|
| Upfront cost | 1.75% of loan amount (usually rolled into loan) | None |
| Annual rate (typical) | 0.55% of loan balance | 0.20%–1.50% (varies by credit score and LTV) |
| Can you request cancellation? | No (for most post-2013 loans with <10% down) | Yes, at 80% LTV |
| Automatic cancellation | No (life of loan for <10% down) | Yes, at 78% LTV by law |
| Drops off with 10%+ down | After 11 years | Same rules apply (80%/78% LTV) |
| Minimum credit score | 580 (3.5% down) or 500 (10% down) | Typically 620+ |
| Who sets the rate? | FHA (same for all borrowers at same LTV/term) | Private insurers (based on risk profile) |
That cancellation difference is the big one. With a conventional loan, you can request PMI removal once you hit 80% loan-to-value, and your servicer must cancel it automatically once you reach 78%. With an FHA loan originated after June 2013 with less than 10% down, there's no such mechanism.
Your Real Options to Remove FHA Mortgage Insurance
If you're stuck paying MIP you'd rather not be, here are the paths that actually exist:
Option 1: Refinance into a conventional loan
This is the most common approach, and for many borrowers it's the only practical one. By refinancing your mortgage from FHA to conventional, you move to a loan type where PMI has a clear exit strategy — or you may avoid mortgage insurance altogether if you have at least 20% equity.
To qualify, you'll typically need:
- A credit score of 620 or higher (680+ for better rates and PMI pricing)
- A debt-to-income ratio that fits conventional guidelines
- Enough equity in your home — ideally 20% to avoid PMI entirely
- Stable income and employment history
Option 2: Wait it out (only if you put 10%+ down)
If you made a down payment of 10% or more on your FHA loan, your MIP will automatically drop off after 11 years of payments. For most borrowers this doesn't apply, but if it does, you may decide the wait is manageable depending on how far into those 11 years you already are.
Option 3: Sell and purchase with a conventional loan
If you're already planning to move, this could make sense. Use the equity from your current home as a down payment on a conventional loan for your next property.
Running the Numbers: When Does Refinancing Make Sense?
A refinance isn't free. There are closing costs involved — typically 2% to 3% of the new loan amount. The question is whether your monthly MIP savings add up to more than the cost of refinancing within a reasonable timeframe.
Here's a simplified example to show how the math works:
| Detail | Current FHA Loan | Refinanced Conventional (20%+ equity) |
|---|---|---|
| Remaining loan balance | $280,000 | $280,000 |
| Interest rate | 6.25% | 6.50% |
| Monthly principal & interest | $1,724 | $1,770 |
| Monthly mortgage insurance | $128 (MIP at 0.55%) | $0 (no PMI with 20%+ equity) |
| Total monthly (P&I + insurance) | $1,852 | $1,770 |
Every situation is different. The interest rate you qualify for on the conventional loan, your current rate, how much equity you have, and how long you plan to stay in the home all factor in. Use a mortgage calculator to run your own numbers, or talk to a broker who can model the comparison for your specific loan.
Also worth noting: if you have between 10% and 20% equity, a conventional refinance would still carry PMI — but that PMI has a clear path to cancellation, which is a meaningful improvement over FHA's life-of-loan MIP.
Why FHA Loans Are Still Worth It for Many Buyers
After reading all of this, you might be thinking FHA loans sound like a bad deal. They're not — they just come with trade-offs that borrowers should understand upfront.
FHA loans exist for a reason, and they remain one of the most accessible paths to homeownership for millions of Americans. Here's where they shine:
- Lower credit score requirements. You can qualify with a 580 credit score (or even 500 with 10% down). Conventional loans typically require at least 620, and better rates start at 680+.
- Low down payment. Just 3.5% down. While conventional loans offer 3% down through some programs, borrowers with lower credit scores won't always qualify for those.
- More flexible debt-to-income ratios. FHA guidelines tend to be more forgiving, which helps borrowers with student loans, car payments, or other debts.
- Gift funds are easier to use. FHA allows 100% of your down payment to come from a gift. Conventional loans have more restrictions depending on your down payment amount.
For a buyer with a 600 credit score, some debt, and limited savings, an FHA loan might be the only realistic option — and that's fine. The MIP is a cost of getting into the home. The strategy is to build equity and credit over the first few years, then refinance into a conventional loan once you qualify.
The problem isn't the FHA loan itself. The problem is when a borrower doesn't know the plan going in. If you treat an FHA loan as a stepping stone — a way to start building equity now rather than waiting years to save more or raise your credit score — the MIP is a known cost you can plan to eliminate later.
What Actually Affects Your Mortgage Approval
If you're thinking about refinancing out of your FHA loan — or weighing FHA against conventional for a new purchase — your income, credit, debt, and equity all play a role in what you qualify for.
We put together a clear breakdown of the factors that matter most, so you know where you stand before you apply.
See Mortgage Loan Approval FactorsFrequently Asked Questions
No — not if your loan was originated after June 3, 2013, and you put down less than 10%. The 20% equity rule applies to conventional PMI, not FHA MIP. For FHA loans in this category, MIP stays for the life of the loan regardless of your equity position. The main way to get rid of it is to refinance into a conventional loan.
It depends on your down payment and when you got the loan. For FHA loans closed after June 3, 2013, with 10% or more down, MIP drops off after 11 years. With less than 10% down (which is most FHA borrowers), MIP lasts for the entire loan term. For loans closed before June 3, 2013, MIP could be cancelled at 78% LTV — but those older rules no longer apply to new loans.
The annual MIP rate for most FHA borrowers is 0.55% of the loan balance. On a $300,000 loan, that works out to about $137.50 per month. There's also an upfront MIP of 1.75% charged at closing (usually rolled into the loan). Your exact monthly amount decreases slightly over time as you pay down the balance.
It depends on several factors: your current interest rate vs. available conventional rates, how much equity you have, your credit score, and how long you plan to stay in the home. If you have 20%+ equity and a credit score above 680, the savings from eliminating MIP often outweigh the closing costs of refinancing — sometimes within just a few years. Run the break-even calculation or talk to a mortgage broker to see if it makes sense for your situation.
Most conventional loans require a minimum credit score of 620. However, to get competitive rates and favorable PMI pricing (if you still need PMI), you'll want a score of 680 or higher. If your credit has improved since you got your FHA loan — which is common after a few years of on-time mortgage payments — you may be in a better position than you expect.
The Bigger Picture
FHA mortgage insurance is one of those topics where a little clarity goes a long way. Too many borrowers find out about the life-of-loan rule after they've been paying MIP for years, and the frustration is understandable — especially when the original lender didn't spell things out clearly.
If you're in that situation right now, you have options. Refinancing into a conventional loan is the most straightforward path to removing that monthly charge, and for many homeowners, the math works out well. But it's worth running the numbers carefully rather than assuming a refinance automatically saves you money.
And if you're shopping for a home right now, trying to decide between FHA and conventional — go in with your eyes open. FHA loans are a strong fit for plenty of buyers. The mortgage insurance is a trade-off, not a dealbreaker. Just make sure you understand the rules before you close, so you can plan your next move with confidence.