One of the challenges of having an FHA loan is that it requires you have mortgage insurance (PMI). People are always asking me, how to get rid of PMI. This is the case for loans with less than 20% equity. It appears that a 15-year term on a FHA mortgage may have a loop hole that helps people eliminate mortgage insurance at 90% loan to value. FHA mortgage insurance premiums were finally reduced in 2017, but many homeowners would rather not pay monthly mortgage insurance if they do not have to.
You need to learn from the pros on how to get rid of mortgage insurance or PMI. There are many alternatives to paying FHA monthly mortgage insurance and PMI including lender paid mortgage insurance. If you are searching for a solution to getting rid of PMI, then this a popular alternative.
There are two phases to the private mortgage insurance premium:
To learn more about how to cancel PMI on your FHA loan, let's explain a few things in detail:
FHA Mortgages Are Great, But How Do You Get Rid of Mortgage Insurance?
The FHA has done a good job in recent years in making home ownership an option for many Americans with credit problems in the past. Once you close escrow on an FHA loan, one of your primary goals should be to learn how to get rid of mortgage insurance so you can reduce your housing expenses as quickly as possible. FHA loan requirements have a reputation for being flexible and this financing is guaranteed by the government and allows lenders to offer:
While FHA home loans are really good products with many up sides, the fact is that for the most part, you are stuck with PMI payments as long as you have an FHA loan.
So how to get rid of PMI?
Your Mortgage Insurance or FHA Loan Does Not Have to Be Permanent!
Millions of homeowners may have needed an FHA loan at first to get into their home. But after a certain period of time of paying their mortgage on time, you have options. This is generally the case today because home prices are appreciating in most areas of the country. Getting a new loan without having to mortgage insurance monthly because it usually reduces housing costs significantly. Getting rid of PMI on FHA loan programs is certainly a viable option with the right approach. If you figure how to eliminate PMI or FHA mortgage insurance you will certainly be in a position to reduce your monthly housing expenses.
Here are your options:
Refinance to Get Rid of PMI
Did you know if you refinance you may be able to eliminate monthly MI payments without any FHA mortgage insurance? With home mortgage rates still very low, refinancing your FHA loan can help you to get rid of PMI and possibly reduce your monthly payments. That's a nice deal! Refinancing can work if your house has gained in value since you last got your mortgage. So, if you bought your home three years ago for $100k and you had to borrow $90k, you have a LTV of 90% and you are paying PMI.
Three years later, you paid all of your payments on time and you have decreased what you owe to $85,000. And the value of the property has increased to $112,000 or 4% per year. So, you now owe $85k on a home worth $112k. So, you owe 76% of the value of the property. That is under the 80% loan to value that means you must pay for mortgage insurance. In this scenario, you will be able to refi into another loan and not pay for mortgage insurance.
Some loans will have a requirement for seasoning before you can refi to lose PMI. If your loan is less than two years old, you can ask for a refinance to cancel PMI, but it may not be approved. When you refinance, you will need to consider your closing costs, as that is a substantial upfront cost. If you are saving more than $100 per month, it could well be worth it.
Lender Paid Mortgage Insurance
Ask about lender paid mortgage insurance. In some cases, lending companies want your business so bad they are willing to offer lender paid mortgage insurance. This means you pay a little bit of a higher interest rate, but you will not have to pay mortgage insurance every month any more. Do the math because lender paid mortgage insurance could save you money by lowering your housing expenses monthly.
Obtain a New Appraisal
Some mortgage lenders will consider a new appraisal rather than your original sales price or old appraised value to determine if you meet the necessary 20% equity point to get rid of PMI. It is true that an appraisal can cost up to $500, but you are talking about getting rid of at least $150 per month in payments, so it is worth it.
Prepay Your FHA Mortgage
Another alternative to FHA PMI removal is to adjust your budget to overpay on your mortgage every month. If you can budget to pay $50 to $100 extra per month, this can get you to the required 20% equity threshold faster.
Renovate and Remodel
If you add space to your home or add a pool, you may be able to substantially increase the value of your home. Then you will need to ask your mortgage lender to recalculate your LTV. The Consumer Financial Protection Bureau also requires you to meet several standards to remove your private mortgage insurance:
Having to pay for mortgage insurance on your FHA mortgage is a necessary evil, but you do not have to do so forever. Hopefully after reading this article you have figured out how to get rid of PMI or FHA monthly mortgage insurance. If you follow some of the above tips, you may be able to drop your PMI payments faster than you think. Then you can use that saved money to pay off your loan even faster than before.
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