FHA loans offer a lot of benefits to homebuyers. They’re insured by the Federal Housing Administration (FHA) and require a lower down payment, sometimes as low as 3.5% of the home’s purchase price, depending on your FICO® credit score.
But here’s the deal: FHA loans come with some additional costs. You have to pay an annual and upfront mortgage insurance premium (MIP) along with your FHA loan. But the good news is if you refinance your existing loan into another FHA loan, you might be eligible for a partial refund of the upfront MIP fee.
What Is An FHA MIP Refund?
When you get an FHA loan to buy a home, there are two types of mortgage insurance premiums you’ll have to pay.
The first one is the annual MIP, which amounts to 0.85% of your loan amount on most FHA loans. Let’s say you borrow $250,000, that means you’ll be paying $2,125 per year or approximately $177 per month.
The second fee is the upfront MIP, a one-time payment that equals 1.75% of your loan amount. In this case, on a $250,000 loan, you would pay $4,375 upfront.
If you decide to refinance your FHA loan to another FHA loan within 3 years of getting your mortgage, you can get a refund for the upfront MIP payment. The amount of refund you receive depends on how quickly you refinance. The sooner you refinance, the more money you’ll get back. But remember, if you don’t refinance within 3 years, you won’t receive any refund for the upfront MIP fee.
How An FHA MIP Refund Works
The amount of refund you’ll receive when you refinance your FHA loan to another one insured by the FHA depends on how long you wait before refinancing.
If you decide to refinance within 12 months, you’ll get a refund of 58% of your upfront payment. However, if you wait until 3 years to refinance, the refund drops significantly to just 10% of your upfront payment.
Here’s the thing: You won’t receive the refund as cash. Instead, your refund will be applied to the upfront MIP payment you need to make when refinancing to a new FHA loan. So, it effectively reduces the size of your new MIP upfront payment. Keep in mind that the FHA does not allow borrowers to receive an MIP refund as cash.
As time goes by, the refund percentage and the amount by which you can reduce the upfront MIP payment on your new FHA loan decreases. It’s important not to be tempted solely by the prospect of a partial MIP refund and rush into refinancing before you’re truly ready. If your current interest rate is already low, and you’re satisfied with the terms and monthly payment, it might not be wise to refinance, regardless of the potential MIP refund you might receive.
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FHA MIP Refund Chart 2023
The speed at which you refinance determines the refund amount. Find out how much of a refund you might get by checking the FHA MIP Refund Chart for 2023 below.
| Months After Closing | MIP Refund | Months After Closing | MIP Refund | Months After Closing | MIP Refund |
| 1 | 80% | 13 | 56% | 25 | 32% |
| 2 | 78% | 14 | 54% | 26 | 30% |
| 3 | 76% | 15 | 52% | 27 | 28% |
| 4 | 74% | 16 | 50% | 28 | 26% |
| 5 | 72% | 17 | 48% | 29 | 24% |
| 6 | 70% | 18 | 46% | 30 | 22% |
| 7 | 68% | 19 | 44% | 31 | 20% |
| 8 | 66% | 20 | 42% | 32 | 18% |
| 9 | 64% | 21 | 40% | 33 | 16% |
| 10 | 62% | 22 | 38% | 34 | 14% |
| 11 | 60% | 23 | 36% | 35 | 12% |
| 12 | 58% | 24 | 34% | 36 | 10% |
Eligibility Requirements For FHA MIP Refunds
Not everyone is eligible for an FHA MIP refund. If you’re planning to refinance an FHA loan, here’s what you need to get your refund:
- You must have closed on your FHA loan less than 3 years ago.
- You need to be current on your mortgage payments.
- Your credit report should not have any foreclosures listed.
- You can only refinance your existing FHA loan into another FHA mortgage.
Make sure you meet these criteria if you want to be eligible for an FHA MIP refund when refinancing.
How To Request An FHA MIP Refund
When it comes to requesting an FHA MIP refund, you can’t do it on your own. The good news is that your mortgage lender will take care of the process for you. They will handle the refund request, and the amount you’re eligible for will be automatically applied to the upfront MIP payment required when you refinance to your new FHA loan.
the bottom line
While an MIP refund can be a nice benefit, it shouldn’t be your primary goal when refinancing. What truly matters is whether you can replace your current loan with one that offers a lower interest rate or a more suitable term to meet your needs. If you’re ready to take this step, it’s time to start the process of refinancing your loan.
Considering buying a home or refinancing? Speak with a mortgage expert to explore FHA loan options. Visit our website or chat with our loan officers at (704) 602-2446 to see if an FHA loan is right for you.
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