If you have an FHA loan, then you are probably paying for mortgage insurance. This is known as private mortgage insurance or PMI. Most borrowers have to pay PMI until they reach a certain point in their loan term. In this blog post, we will discuss when you can drop PMI on an FHA loan. Keep reading to learn more!
When Can You Drop PMI on an FHA Loan Table of Contents
When Can You Drop PMI on an FHA Loan?
You can drop PMI when your home's value reaches 78% of the original purchase price. This means that earliest you can drop PMI on an FHA loan is when you reach 22% equity in your home.
You'll need to pay for an appraisal to determine your home's current market value, and then compare that appraised value to your original purchase price. If your home has appreciated enough, you can request that your lender cancel PMI.
There are a few different ways that you can drop PMI on an FHA loan. One way is to reach a certain point in your loan term. The length of your loan term will depend on the type of loan that you have. For example, if you have a 30-year fixed-rate mortgage, then you will not be able to drop PMI until you reach the 30-year mark.
You can also drop PMI once you reach 78% Loan-to-Value (LTV) ratio on a 30 year fixed rate mortgage. The LTV is calculated by dividing your current loan amount by the appraised value of your home.
For example, if you have a $150,000 loan and your home is appraised at $200,000, your LTV ratio would be 75%. You can also request to have PMI removed when you reach 80% LTV on a 15-year fixed rate mortgage or when you reach 78% LTV on a 30-year fixed rate mortgage that is not a streamline refinance.
Another way to drop PMI is to increase the value of your home. You can do this by making improvements to your home or by waiting for your home to appreciate in value. If the value of your home increases, then you will have more equity and you will be able to drop PMI.
You can also drop PMI if you refinance your loan. This option may not be available to everyone, but it is worth considering if you are looking for a way to get rid of PMI.
What is PMI?
Private Mortgage Insurance (PMI) is insurance that protects the lender in case the borrower defaults on their home loan. PMI is required on all FHA loans with a down payment of less than 20%. Once you reach 22% equity in your home, you can contact your lender to cancel PMI.
What is an FHA Loan?
An FHA loan is a mortgage that is guaranteed by the Federal Housing Administration. FHA loans are available to borrowers with credit scores as low as 580, and they only require a down payment of three and a half percent. FHA loans are a great option for first-time homebuyers or anyone who doesn't have the best credit score.
How Can You Pay Off Your Mortgage Faster?
One way to pay off your mortgage faster and thus avoid paying PMI for as long as possible is to make bi-weekly payments instead of monthly payments. With a bi-weekly payment plan, you make 26 half-payments throughout the year. This equals 13 full monthly payments, one extra payment each year.
Another way to speed up paying off your mortgage is to make a lump sum payment towards your principal balance when you can. Any extra money you have above your regular monthly payment can be put towards the principal, which will reduce the amount of interest you pay over the life of the loan and help you build equity faster.
You may also be able to refinance your loan to drop PMI sooner. If interest rates have lowered since you first took out your mortgage, or if your home has increased in value, you may be able to qualify for a new loan with a better rate that won’t require PMI. Talk to your lender about refinancing options.
How Much Is PMI on FHA Loan 2021 & 2022?
The PMI premium is 0.55% of the loan amount per year, divided into 12 monthly installments, and added to your monthly mortgage payment.
You can use this calculate to estimate your monthly PMI payments.
Do You Have to Pay PMI on an FHA Loan?
If you have an FHA loan with a down payment of less than 20%, you will be required to pay PMI. Once you reach 22% equity in your home, you can contact your lender to cancel PMI.
What is a Mortgage Insurance Removal Notification Letter?
A Mortgage Insurance Removal Notification Letter is a letter that you can send to your lender when you reach 22% equity in your home. This letter requests that the lender remove PMI from your mortgage payment.
Do I Have to Pay a Fee When I Drop PMI?
In most cases, you will not have to pay a fee when you drop PMI. However, some lenders may charge a small fee for processing the paperwork to remove PMI from your loan.
Will My PMI Payments Increase?
No, your PMI payments will not increase. The premium is set when you first take out your loan and does not change throughout the life of the loan.