One of the challenges of having an FHA loan is that it requires you have mortgage insurance (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.
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...
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. 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 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.
Here are your options:
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.
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
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. 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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