Ultimate Guide to Removing PMI from Your FHA Mortgage

PMI or Private Mortgage Insurance is an added expense paid by borrowers who have taken out a mortgage with a down payment of less than 20%. This insurance is designed to protect the lender in cases of loan default and foreclosure. For borrowers who have taken out an FHA (Federal Housing Administration) loan, this insurance comes in the form of MIP (Mortgage Insurance Premium). While MIP is essential in securing an FHA loan, many borrowers wish to remove it as soon as possible. Here are a few ways on how to remove PMI from an FHA mortgage.

Pay down your loan balance to 78% LTV

One way to remove MIP from an FHA mortgage is by paying down your loan balance to 78% Loan-to-Value (LTV) ratio. Once you have paid off enough of your loan, you can submit a request to your lender to have the MIP removed. The request must be accompanied by an appraisal to prove that the LTV ratio is below 78%. The cost of the appraisal falls on the borrower.

Refinance your loan

Another way to remove MIP from an FHA mortgage is by refinancing your loan. If you have a high-interest rate, you can refinance to get a lower rate and remove MIP. Refinancing is only possible if you have a good credit score and enough equity in your home. Refinancing will also come with closing costs that may be waived if you refinance with the same lender.

Wait until MIP is removed

If you can’t pay down your loan balance or refinance, you can wait until the MIP is removed automatically. If you have a 30-year fixed loan, MIP can be removed after 11 years as long as you have paid your mortgage on time for the previous 12 months. For a 15-year fixed loan, MIP can be removed after 60 months.

Make extra payments

If you can’t pay down your loan balance to 78% LTV ratio, you can make extra payments to your mortgage. This will help you reach the 78% LTV ratio faster. Making extra payments requires discipline and a solid plan to ensure that you don’t default on your other bills.

Consider an FHA streamline refinance

If you have an FHA loan, you may be eligible for an FHA streamline refinance. This type of refinance doesn’t require an appraisal or income verification and can be done with your current lender. However, you will need to pay a one-time upfront mortgage insurance premium of 1.75% of your loan amount and monthly MIP payments.

Switch to a conventional loan

If you have enough equity in your home, you can switch from an FHA loan to a conventional loan. This will require you to refinance and get a new mortgage. However, you will need to have a good credit score and a low debt-to-income ratio to qualify for a conventional loan. Conventional loans also require a down payment of at least 3%.

Conclusion

Removing MIP from an FHA mortgage requires careful planning and patience. Paying down your loan balance and refinancing are the most effective ways to remove MIP. Making extra payments, waiting until MIP is removed automatically, or switching to a conventional loan can also help remove MIP. Speak with your lender to determine the best option for you.

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