FHA Mortgage Insurance Refund

By Stevie Duffin Updated on 7/20/2017

While loans insured by the Federal Housing Administration (FHA) include many beneficial qualities, borrowers securing FHA mortgages or FHA refinance loans pay high mortgage insurance charges, regardless of the down payment amount. 

Divided into two fees, an up-front mortgage insurance premium (UFMIP) and annual mortgage insurance premiums (MIP), FHA mortgage insurance can add considerable expense to loan acquisition, especially when borrowers include the UFMIP within the loan balance. 

However, the Department of Housing and Urban Development (HUD) grants FHA mortgage insurance refunds to select borrowers who have paid off their FHA mortgage, depending on several factors.

FHA MIP Refund Eligibility

Borrowers can obtain two types of FHA mortgage insurance refunds, premium refunds, and distributive share refunds, depending on when the mortgage was acquired and if it meets certain guidelines.

Premium Refund

To receive an FHA mortgage insurance premium refund, borrowers must satisfy all of the following requirements:

• The mortgage must have been acquired after September 1, 1983, but before June 3, 2013
• The borrower must have paid the UFMIP at closing.
• The borrower cannot have defaulted on any mortgage payments.

If you are unsure whether you paid the up-front mortgage insurance premium, look at the settlement papers or verify through your mortgage company.

Distributive Share Refund

To qualify for a distributive share of the excess earnings from the Mutual Mortgage Insurance fund, borrowers must meet all of the following criteria:

• The mortgage must have been originated prior to September 1, 1983
• The borrower must have made mortgage payments for a minimum of 7 years.
• The HUD must have finalized your FHA insurance termination prior to November 5, 1990.

Mortgage Insurance Refund Exceptions

• Mortgage Assumptions – If the FHA-insured mortgage was assumed, the previously paid insurance remains in effect, and seller will be ineligible for a refund; however, the owner of the property at the time of mortgage insurance termination may receive a refund.
• FHA Refinancing – Once an FHA mortgage loan is refinanced, borrowers may apply for the refund from the previously paid premium to the new loan’s up-front premium.
• Claims – If the mortgage company makes a claim to the HUD for insurance benefits, the homeowner will not be eligible for a refund.
• Statute of Limitations – For distributive share refunds, the HUD will not be held responsible for funding refunds which are not claimed within six years from the date on which the notification was submitted to the mortgagor.

How is the refund amount determined?

When processing mortgage insurance refunds, the FHA Commissioner will assess how much of the upfront premium will be refunded once the loan has been terminated, depending on the amount of time which the loan was insured. For loans closed before January 1, 2001, homeowners will not receive a refund following the conclusion of the seventh year. Regarding loans closed on or after January 1, 2001, no refund will be due to the homeowner following the fifth year.

Mortgage Insurance Refund Process

Mortgage insurance refunds are processed in 4 steps:

1. Notify the HUD.Ask your mortgage company to notify the HUD of the FHA mortgage insurance termination.
2. HUD Evaluation. Once the HUD determines that the borrower is eligible, it will either submit a request with the Department of Treasury to directly issue a check for the refund or send an Application for Premium Refund or Distributive Share Payment (form HUD-27050-B), which requests additional borrower information regarding the circumstances of the refund.
3. Submit the form. Borrowers who receive the HUD-27050-B form should read and accurately complete the application. Borrowers must sign and have the document notarized before submitting the form, along with proof of property ownership at the termination date of the mortgage insurance, to the HUD.
4. Final review. Upon receiving the fully completed form HUD-27050-B and any additional required documentation, the HUD will carefully review this information. Following the review, the HUD will either contact the Treasury, who will subsequently send a refund check directly to the borrower or request additional information.

Following Up a MIP Refund Application

If you do not receive a refund check or an application form within 45 days of paying off the FHA loan, verify that your mortgage company has submitted the HUD request to terminate the mortgage insurance. 

Also, contact the HUD as soon as possible. Ff you do not receive a refund check or a request for additional information from the HUD within 120 days of mailing an application, contact the HUD immediately.