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Switch FHA to Conventional & Remove Monthly Insurance Premium
Everybody thinks they can get rid of their mortgage insurance when they have 20 percent equity, but that’s not really the case.
Technically, you can request the servicer to cancel mortgage insurance based on the current value of the home. But, generally, you have to wait two to five years after taking out the loan to make the request, and the lender can reject it for a number of reasons, depending on which investors own your loan.
Lenders are more likely to approve requests that are based on what the home was worth at the time the loan closed. You must have a good payment history to be approved for this request. That includes no 30-day or more late payments in the past year or a 60-day late payment in the past two years. Even if you meet all these requirements, there may be other obstacles.
The lender can simply say, ‘Your home has gone down in value.’ Having a second mortgage on the home can also be an impediment. Borrowers with FHA loans may not request mortgage insurance cancellation. In my opinion in MOST cases with FHA, you would have to refinance to drop the mortgage insurance.
The easiest, quickest way: Refinance
With an FHA or a conventional loan, the easiest way to dump your mortgage insurance is a refinance. The ultimate trump card is a refinance because you are going to do a new appraisal, and if you establish you have 20 percent equity, then you don’t need mortgage insurance.
If you don’t have 20 percent equity but have some cash to pay down the mortgage, refinancing may still be a better option than simply paying down the existing loan and hoping the lender will approve your request to remove the mortgage insurance.
With a refinance you will be in control. You kill two birds with one stone, You get rid of your mortgage insurance and you get a lower interest rate, if available in the market place.