How to Get Rid of Mortgage Insurance on a FHA Loan

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:

  • The upfront mortgage insurance premium of 1.75% that you can wrap into the mortgage.
  • The ongoing mortgage insurance premium that you pay each year which is wrapped into your monthly payment. The typical annual fee is .85% of the borrowed amount.

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:

  • 3.5% down payment loans
  • Refinances without any appraisal needed
  • Very low interest rates that often beat conventional rates

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?

get rid of mortgage insurance

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:

Refinance

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.

FHA MI

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:

  • You must ask for PMI removal in writing.
  • You must be current on all mortgage payments and have a reliable payment history for at least the last two years.
  • You must show that you do not have any other loans on your home, such as a home equity line of credit.
  • You may have to pay for an appraisal to show that you loan balance is not above 80% of the home's worth.

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.

FirstTimeHomeFinancing.com provides a news and information service by offering editorial content related to the housing and mortgage industry. This website is not responsible for the accuracy of information or responsible for the accuracy of the rates, APR or mortgage guidelines posted by advertising banks, lenders and brokers.

All rights reserved. FirstTimeHomeFinancing.com - Copyright © 2000-2016 and Beyond

Home | Mortgage Calculator | Apply Now | New Articles | Terms of Use | Privacy