If you’re in search of how to get rid of PMI on a FHA loan, you’ve come to the right place. Contrary to what you might think, the monthly premium you pay on your FHA loan does not have to be a permanent expense. In fact, you might be eligible to get rid of it right now. Keep reading to find out.
In this post, we’ll answer some pressing questions you might have, including:
- What is PMI or MIP?
- How does PMI work?
- How to get rid of PMI on a FHA loan (yes, it is possible!)
Let’s get into the details of PMI and see how you can eliminate it from your monthly payment.
What is PMI or MIP?
Private Mortgage Insurance (PMI) is a monthly premium you have to pay on your loan. It’s a form of insurance that protects your lender if you were ever to stop making payments on your mortgage.
FHA loans are government-backed loans. These have their own kind of PMI, which comes in the form of the monthly Mortgage Insurance Premium (MIP).
Because PMI and MIP are basically the same things (one is for private loans, the other for government-backed loans), you’re probably going to use the term PMI regardless of your loan type.
How does PMI work for a Conventional loan?
PMI is required for a Conventional loan if your down payment is less than 20% of the home’s purchase price. It’s also required if you’re refinancing and have less than 20% equity in your home.
With a Conventional loan, your monthly PMI automatically goes away once you have 20% equity in your home.
How does PMI work on an FHA loan?
If you already own your home, or you’re still wondering what your down payment options are, you should know how PMI works on a FHA loan. PMI/MIP is required for FHA loans but may go away after a certain length of time (more on that below). Two types of MIP get applied to an FHA loan:
- The upfront MIP – This form of MIP is a one-time fee equal to 1.75% of your loan’s original balance. This MIP is due at closing, but you could have it added to the balance of your loan if you’re unable to pay upfront. The good news is you might be eligible for a refund if you already have an FHA loan.
- The annual MIP – This form of MIP is an annual expense equal to between 0.45% and 1.05% of your loan’s balance, broken up into monthly payments every year. The rate varies based on your financing term and your original loan amount. But the good news is that the amount you pay decreases over time because it’s charged as a percentage of your loan’s size.
Whether you used an FHA loan recently, or you’ve been living in your home for more than a few years, you’re probably wondering: can you get rid of your PMI? The short answer is yes!
How to get rid of PMI on a FHA loan
Now that you understand a little more about PMI on your FHA loan, it’s time to show you how you can get rid of it. There are two ways to get rid of PMI on a FHA loan:
- If you’re eligible, your PMI will go away automatically after a certain period
- The other way to get rid of PMI is to refinance to a Conventional mortgage
How to get rid of PMI: Wait for it
Before you contemplate refinancing, you might be eligible to have your FHA loan’s PMI go away on its own. This could be the case if you took out your loan before June 3, 2013, or if you put at least 10% down on your loan.
- If you took out your FHA loan before June 3, 2013, your PMI would go away automatically once you have 22% equity in your home. The only catch is you must have made all your payments on time.
- If you took out your FHA loan after June 3, 2013, and put at least 10% down, your PMI will go away after paying on your loan for 11 years.
However, many people choose the FHA loan because it allows for a smaller down payment (only 3.5%). If you recently bought your home and put less than 10% down, your PMI will remain for the life of your loan. But does that mean you’re stuck with PMI for the next 30 years? Not at all.
How to get rid of PMI: Refinance
One of the best ways to save money every month is to refinance your mortgage. This includes being able to eliminate your PMI from your existing FHA loan. In this case, you’ll need to refinance to a Conventional loan.
To do so, you need to have a loan-to-value (LTV) ratio of 80% or lower. In other words, you’ll need at least 20% equity in your home.
The final step is to team up with an experienced lender specializing in helping you refinance out of your FHA loan. Let them know that you’re refinancing to eliminate PMI, and they’ll guide you through the rest of the process, including:
- Getting a new appraisal to see your home’s current value
- Verifying your credit score
- Verifying your income
From there, it’s as simple as applying and getting approved for a Conventional mortgage.
Ready to get rid of PMI?
Apply now to see what you qualify for, and we’ll show you how much you can save every month.
Want more info about refinancing?
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