How is the Mortgage Insurance on a FHA Loan calculated and can the MI be ever canceled once a 20% equity is reached in case of a FHA loan?

Asked by Anu, 94523 Thu Jun 10, 2010

I am a first time home-buyer so please excuse if my questions seem to be rudimentary. Is there a formula to calculate the MI on a FHA loan? Lets say I put 5% down payment and still need to borrow around 450,000 using a conventional 30 year fixed at 5%, how much will the MI amount to?
Also would like to know if ever the MI be canceled once a certain equity is reached similar to PMI in conventional loans. Just trying to make sense if I should go in for a FHA or a conventional loan.

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, ,
Fri Jun 11, 2010
Bob, he is talking about an FHA loan, which has a requirement to keep the MIP (not MI, that is for conventional loans) for a minimum of 5 years with no late payments. This is regardless of the LTV, even if it is only 50 when the person buys the house and has to go FHA for some reason.
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Bob Georgiou, Agent, Danville, CA
Fri Jun 11, 2010

Last things first. it can be cancelled once 20% is reached as evidenced by an appraisal. The "Gotcha" is that they perform the appraisal and gouge you for it. (No joke. Back in the day I had 50% equity in a property I purchased FHA. Called up the bank to remove MI, they wanted $450. At that time I could have an appraisal done for $200. I did a no cost refi instead.) Agents and mortgage brokers do not generally read MI contracts so if you really want the answer, get an advance copy of your MI policy and take it to an attorney.
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, ,
Thu Jun 10, 2010
You would first have to determine whether your area is considered a high cost area to know whether your desired loan amount can be done. After that, with 5% down, you would first add the 2.25% up-front MIP fee, then multiply that by .005 and divide by 12 to come up with the monthly MIP. On an FHA loan, you must keep the MIP for 5 years and have on time payments in order to drop it once you have sufficient equity.
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