FHA mortgage insurance (MIP) is the biggest hidden cost for NJ first-time buyers. If you put less than 10% down, MIP stays for the LIFE of the loan — $50,000+ over 30 years. But there's a way out: refinance from FHA to conventional once you have 20% equity.
Why FHA MIP Stays Forever
FHA rules (loans after June 3, 2013):
| Down Payment | MIP Duration |
|---|---|
| Less than 10% | Life of the loan |
| 10% or more | 11 years |
Most NJ first-time buyers put 3.5% down. MIP is permanent until refinance.
The Refinance-Out Strategy
- Buy with FHA + low down payment
- Build equity via principal paydown + NJ appreciation (4-5%/year in Bergen/Essex)
- Reach 80% LTV
- Refinance to conventional — no PMI required
NJ Appreciation Math
$450K Bergen County home, FHA 3.5% down ($441K loan):
| Year | Value (4% app.) | Balance | LTV |
|---|---|---|---|
| 0 | $450,000 | $441,000 | 98% |
| 2 | $487,000 | $427,000 | 88% |
| 4 | $527,000 | $412,000 | 78% ← refi eligible |
| 5 | $548,000 | $404,000 | 74% |
Year 4 is typically when NJ buyers refinance out of FHA.
Real Savings
Same $450K home at year 4:
- Current FHA: $2,866 P&I + $203 MIP = $3,069
- New conventional: $2,866 P&I + $0 PMI = $2,866
- Monthly savings: $203
- 26-year savings: $63,336
- Net after $3-5K refi costs: $58K-$60K
When NOT to Refinance
- Rates higher than your current FHA rate
- Home value declined (still above 80% LTV)
- Credit deteriorated
- Plan to sell in 1-2 years
Alternative: FHA Streamline
If you want to lower your rate but haven't hit 20% equity yet, the FHA Streamline Refinance reduces your rate without an appraisal. Keeps MIP though — bridge strategy until you have full equity.
Free refinance check — I'll calculate your LTV and refinance break-even.