A borrower needs to pay mortgage insurance premium (MIP), if he buys home with an FHA mortgage and puts down less than 20% of the purchase price. But is it possible to avoid paying MIP, even though you’re making less than 20% down payment?

Well, one of the posters in MortgageFit forums has a similar query. He intends to make a down payment of 3.5%-5% on an FHA loan to buy a home for $320,000. But he says the house is appraised by the lender at $410,000. He asks:

Can he remove the MIP since there’s enough equity in the home?

FHA requires a borrower to pay an upfront mortgage insurance premium of 1.75% and an annual premium of 0.55%, if he makes less than 20% down payment. The MIP can be canceled when the loan-to-value (LTV) ratio of the property reaches 78% of the original home value. However, the payment of MIP for the first 5 years is mandatory for FHA loans with terms of more than 15 years. Thus, if the poster is going for, say, a 30 year FHA mortgage, he’ll not be able to remove the MIP within the first 5 years, even though the LTV is 78% or lower.
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