Have an FHA loan? Here's how the MIP refund works.
On your FHA loan, you paid a mortgage insurance premium at the time of buying the house (or refinancing). This initial premium is the called the Up-Front Mortgage Insurance Premium (UFMIP or MIP).
Did you know this fee is refundable if you refinance into another FHA loan like the FHA Streamline Refinance or the FHA Cash-out Refinance within three years of starting your current FHA loan?
It is! Why does that matter?
1. Because interest rates are at a three-year LOW right now!
2. Because you have the opportunity to lower your interest rate and LOWER your payment, and,
3. Because usually you don't have to come out of pocket with anything!
The Federal Housing Administration (FHA) reduces a borrower’s eligible refund amount two percentage points for each month after the initial loan closing date. This is why it’s best to refinance sooner rather later with FHA loans. The higher your interest rate is at the beginning of the loan is when you pay the most in interest each payment. If you can lower your rate, you lower your payment and save on the interest NOW and not in 30 years.
For example, let’s say you purchased a $250,000 home 13 months ago and paid an upfront mortgage insurance premium of $4,375 (1.75% x base loan amount). If you refinance now, you may be eligible to receive a 56% refund or $2,450. If you wait an additional 6 months to refinance, then the eligible refund amount drops to $1,925. (see the chart below)
Upfront mortgage insurance premiums vs. annual insurance premiums
In addition to upfront mortgage insurance premiums, all FHA loans charge an annual insurance premium. Each premium charges a different percentage on the base loan amount and has specific requirements.
Upfront mortgage insurance premiums (UFMIP) is a one-time charge due at closing. All FHA loans are charged 1.75% of the base loan amount and this number is added into your loan.
Annual insurance premiums are paid over the life of the loan (with exceptions for older existing FHA loans) which is what you see on your mortgage statement.
The percentage you’ll be charged is dependent on the base loan amount, your down payment amount, and the loan term. (See a table of FHA insurance premiums.)
Can I get the FHA MIP refunded in cash?
No. FHA MIP refunds are not eligible as cash refunds. The HUD underwriting guidelines states “If the borrower is refinancing his/her current FHA loan to another FHA loan within 3 years, a refund credit may be applied to reduce the amount of the UFMIP paid on the refinanced loan.”
FHA MIP Refund Chart 2019
Use easy math to calculate your FHA MIP refund
To calculate your FHA MIP refund, you’ll first need to determine a couple of figures.
1. Your original MIP amount. You can find this listed on your final closing disclosure. (or I can help you determine it)
2. The number of months after your closing date
3. The eligible refund percentage (see the chart above)
Next, multiple your original MIP amount by the eligible refund percentage to determine your total refund amount. For example, if your original MIP amount was $2,500 on a loan that closed 12 months ago, then your eligible refund percentage is 58%. Your MIP refund amount is $1,450 ($2,500 x 0.58).
Original MIP amount x Refund % = FHA MIP refund amount
Your refund amount is only part of the story, though. When you refinance your current FHA loan and there is a refund due, the refund amount is applied to the new upfront mortgage insurance premium for your new FHA refinance loan.
First, calculate the new FHA loan MIP amount
To calculate your MIP amount for your new FHA refinance loan, you’ll need to determine following figures:
New UFMIP amount. This is calculated by multiplying your base loan amount by 1.75%
e.g. $100,000 X 1.75% = $1,750
MIP refund amount See above section for how to calculate.
e.g. $1,750 X 56% = $980
Next, subtract your MIP refund amount from your new UFMIP amount.
e.g. $1,750 - 980 = $770
This amount is the total UFMIP you will roll into your new refinance loan. The purpose of the refund is to not penalize you for improving your financial situation by charging you a full amount of UFMIP after you've just recently paid it.
(MIP refund amount) – (New UFMIP amount) = New loan UFMIP amount
FHA MIP refund: eligibility
The Federal Housing Administration has specific eligibility requirements for MIP refunds. To be eligible, your existing FHA loan must:
Have closed less than three years ago
Not have entered foreclosure
Not be an assumed FHA mortgage
Be up-to-date on all mortgage payments *no serious delinquencies
The MIP refund is only applied toward your new MIP on an FHA refinance loan. ALL homeowners refinancing their loan must meet a Net Tangible Benefit. This prevents you from refinancing if there isn't a benefit.
For FHA streamline refinances, MIP refunds are only available after the 7-month waiting period required for these loans.Your refinance loan must close by the end of the 36th month after the current FHA loan was opened.
Who do I contact with questions regarding my MIP refund?
Me! I'm your resource and can guide you through the process like I've done with every person I've helped get financed over the last 14 years! Call me today at 214-395-7630 or email me at LBaca@GenevaFi.com or apply by clicking HERE!