If you have a Federal Housing Administration (FHA) loan, then you are probably paying for private mortgage insurance (PMI). This is an extra monthly expense that can add up to a lot of money over time. Fortunately, there are ways to get rid of PMI on FHA loans. In this blog post, we will walk you through the process of how to get rid of PMI on FHA loans. Keep reading for more information!
How to Get Rid of PMI on a FHA Loan Table of Contents
How to Get Rid of PMI on a FHA Loan
You're making great progress on your journey to becoming a homeowner. You've saved up for a down payment, you've found the perfect home, and you've been approved for a mortgage. There's just one more thing standing in your way: private mortgage insurance (PMI).
PMI is required on all FHA loans with a down payment of less than 20%. But there are ways to get rid of PMI sooner. Here's how:
Make Extra Mortgage Payments
By making additional monthly payments, you can pay off your loan balance faster and reach the point where you no longer owe PMI.
Refinance Your Mortgage
Once you have enough equity built up in your home, you may be able to refinance into a conventional loan and drop PMI.
Making extra payments or refinancing may not be right for everyone, so be sure to talk to your lender about the best way to get rid of PMI on your FHA loan.
What is PMI?
PMI stands for private mortgage insurance. It is a type of insurance that you are required to pay for if you have a conventional loan and put less than 20% down on your home. PMI protects the lender in case you default on your loan.
What is Defaulting on a Loan?
Defaulting on a loan is when you stop making payments on your mortgage. If you default on your loan, the lender can foreclose on your home.
Is PMI Required on a FHA Loan?
No, PMI is not required on a FHA loan. You will however be required to pay an upfront mortgage insurance premium (MIP) and an annual MIP. The annual MIP is paid in monthly installments.
What is a FHA Loan?
A FHA loan is a mortgage that is insured by the Federal Housing Administration. FHA loans are available to first time home buyers and people with less than perfect credit.
When Should I Refinance My FHA Loan Into a Conventional Mortgage?
You may want to consider refinancing your FHA loan into a conventional mortgage when you:
- Have 20% equity in your home
- Are no longer required to pay PMI
- Want to lower your monthly payment by getting rid of MIP
How Do I Get Rid of MIP on My FHA Loan?
MIP can be removed from your FHA loan once you reach 22% equity in your home. To remove MIP from your loan, you will need to refinance into a conventional mortgage. You cannot simply cancel MIP like you can PMI.
How Do I Get Rid of PMI on My Conventional Loan?
You can get rid of PMI on a conventional loan by reaching 80% equity in your home. Once you reach 80% equity, you can contact your lender and request that PMI be removed from your loan. You cannot simply cancel PMI like you can MIP.
What is the Difference Between MIP and PMI?
MIP stands for mortgage insurance premium and is required on FHA loans. Mortgage insurance protects the lender in case of default. PMI stands for private mortgage insurance and is required on conventional loans with less than 20% down. Both MIP and PMI are paid by the borrower. The difference between MIP and PMI is that MIP cannot be canceled while PMI can be removed once you reach 80% equity in your home.
How Much Does Private Mortgage Insurance (PMI) Cost?
The average cost of PMI is 0.55% of your loan amount per year. The cost of PMI varies based on your credit score, loan amount, and down payment.
How Much Does Mortgage Insurance Premium (MIP) Cost?
The annual MIP for a 30-year fixed FHA loan is 0.85%. The upfront premium is typically financed into the loan so you don’t have to pay it out of pocket at closing.
When Can I Stop Paying Mortgage Insurance (PMI)?
You can stop paying MIP when you reach 22% equity in your home or you can refinance into a conventional mortgage once you have 20% equity in your home. You can stop paying PMI when you reach 80% equity in your home or you can refinance into a conventional mortgage.
How Do I Refinance My Home?
To refinance your home, you will need to contact a mortgage lender and apply for a new loan. You will need to have 20% equity in your home to qualify for a conventional loan. If you have less than 20% equity, you may still be able to refinance into an FHA loan.
What is a Mortgage Insurance Removal Notification Letter?
A Mortgage Insurance Removal Notification Letter is a letter that notifies your lender that you have met the requirements for removing your mortgage insurance. This letter is also sometimes called a PMI Cancellation Letter.
To remove your mortgage insurance, you will need to have reached at least 20% equity in your home. You can reach 20% equity in one of two ways: by paying down your loan balance or by having your home appreciate in value. Once you reach 20% equity, you can contact your lender and request a Mortgage Insurance Removal Notification Letter.
Your lender will likely require an appraisal to confirm that your home has reached the required level of appreciation. Once the appraiser has confirmed that your home has appreciated enough, you should receive your Mortgage Insurance Removal Notification Letter within a few weeks.
Once you receive your Mortgage Insurance Removal Notification Letter, you can begin the process of removing your mortgage insurance. The first step is to contact your mortgage servicer and request that they remove the mortgage insurance from your loan.
You will need to provide them with a copy of the Mortgage Insurance Removal Notification Letter as well as proof that you have paid off any delinquent payments on your loan. Once they have received this information, they should be able to remove the mortgage insurance from your loan within 30 days.
Will I Have to Pay Any Fees When I Get Rid of PMI on a FHA Loan?
The good news is that you won’t have to pay any fees to get rid of PMI on a FHA loan. In fact, you should be able to get rid of it without even having to refinance your home. The first way to get rid of PMI is to simply ask your lender to remove it. If you have been paying your mortgage on time for at least a year, most lenders will be happy to do so. Another way to get rid of PMI is by refinancing your home. This option may not be right for everyone, but if you feel like it’s something you can afford, it may be worth considering. By refinancing, you will likely have to pay some closing costs.
Can I Cancel PMI if My Home Value Increases?
If your home value increases, you may be able to cancel PMI. You will need to contact your lender and request an appraisal. If the appraised value of your home is higher than the original purchase price, you should be able to cancel PMI.
How Do I Avoid Paying Mortgage Insurance?
The best way to avoid paying mortgage insurance is to put down a 20% down payment when you purchase your home. If you are unable to do this, there are a few other options. One option is to get an FHA loan which only requires a minimum down payment of
Another option is to get a conventional loan which requires a minimum down payment of
A third option is to get a VA loan which does not require a down payment.
If you are unable to make a 20% down payment, getting an FHA, conventional, or VA loan is a great way to avoid paying mortgage insurance. Another way to avoid paying mortgage insurance is to have your home appraised and if the appraised value is higher than the purchase price, you may be able to cancel PMI.