If you have an FHA-insured mortgage, you’re likely familiar with the monthly mortgage insurance premiums (MIP) that come along with it. While mortgage insurance provides important protection for lenders and makes FHA loans more accessible, paying the premiums for the life of the loan can get expensive.
The good news is that you may have options to cancel your MIP depending on your specific loan details. In this comprehensive guide, I’ll walk through when and how you can request to remove private mortgage insurance (PMI) from an FHA loan.
When Can You Cancel PMI on an FHA Mortgage?
Whether or not you can cancel PMI on your FHA loan depends primarily on two factors:
When You Originated the Loan
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Loans originated from July 1991 to December 2000 – PMI is required for the full term of the loan.
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Loans originated from January 2001 to June 2013 – PMI can be canceled once you reach 78% loan-to-value (LTV) ratio.
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Loans originated after June 2013 – If you put down less than 10%, PMI is required for the full term. If you put down 10% or more, PMI cancels after 11 years.
Your Down Payment Percentage
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Less than 10% down – PMI is required for the full term of the loan.
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10% or more down – PMI cancels automatically after 11 years of on-time payments.
Knowing your loan origination date and down payment amount are key to understanding if and when you may be able to request cancellation of PMI premiums.
How to Cancel PMI on an Eligible FHA Loan
If you determine your loan meets the criteria for PMI cancellation based on when it was originated and your down payment amount, here is the process to request removal:
1. Confirm You’ve Reached 78% LTV
Calculate your current loan-to-value ratio This is your current mortgage loan balance divided by the home’s original value when you bought it.
Example:
- Original home purchase price: $200,000
- Current mortgage balance: $140,000
- $140,000 / $200,000 = 70% LTV
In this example the borrower has surpassed the 78% LTV threshold needed to cancel PMI.
2. Review Payment History
To be eligible for PMI cancellation, you must have an on-time payment history with no late payments on your loan. Review your payment history and ensure you’ve met this requirement.
3. Contact Mortgage Servicer
Reach out to your mortgage servicer in writing to request cancellation of your PMI. Provide documentation showing you’ve reached 78% LTV along with verification of your on-time payment history.
4. Confirm Cancellation
Your servicer will review your request and confirm if you meet all criteria for PMI removal. Once approved, they will provide written confirmation of the cancellation and your new monthly payment amount without PMI.
As long as you’ve met the requirements, the process is relatively straightforward. Just be sure to retain records showing your loan details and payment history.
Alternatives if PMI Can’t Be Cancelled
If your FHA loan was originated after June 2013 and you put down less than 10%, or your loan originated between 1991-2000, you will not be able to cancel PMI over the life of the loan. But you may have alternatives, including:
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Paying down principal – Making extra mortgage payments to pay down your loan faster could help you reach 78% LTV sooner.
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Home improvements – Increasing your home’s value through renovations can also help lower your LTV quicker.
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Refinancing – You may be able to refinance to a conventional loan and eliminate PMI if you have 20% equity.
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Waiting – If you’re close to the 11-year mark for cancellation, it may make sense to wait it out.
Carefully weigh the pros and cons of each option if your PMI cancellation request is denied. While annoying, sticking it out with your current FHA loan could end up being the most cost-effective approach.
The PMI Cancellation Process Explained
Understanding the guidelines around PMI cancellation on FHA loans is the first step. But you may still have questions about how the actual process works when requesting to remove your mortgage insurance premiums. Here are some additional details:
Timing of Cancellation
Your servicer must cancel PMI within 45 days of receiving your written request and documentation that you have reached 78% LTV.
Notification Requirements
Once approved, your servicer has to provide written notification informing you your PMI has been terminated and your new monthly payment amount. This must be sent within 30 days of cancellation.
Escrow Refunds
If you had your PMI premium added to your monthly escrow payment, you will receive a refund of any overage amount in your escrow account after cancellation. Most lenders issue refund checks within 30-45 days.
Payment Adjustments
With your PMI premium removed, your monthly mortgage payment should decrease. But your servicer may make small adjustments to your monthly escrow payment for property taxes and insurance to prevent any potential shortage.
Auto-Cancellation
If you reach 78% LTV and don’t request cancellation, the Homeowners Protection Act requires your servicer to terminate PMI automatically within the correct timeframe based on origination date.
Denial Reasons
If your cancellation request is denied, the most common reasons are not meeting the 78% LTV threshold or having late mortgage payments within the last 12 months.
Familiarizing yourself with these behind-the-scenes processes can help ensure your PMI cancellation goes smoothly.
5 Tips for Removing PMI Sooner
Canceling your FHA loan’s PMI can feel like it takes forever. Here are 5 tips that could help you reach that magic 78% LTV threshold faster:
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Make extra principal payments – Making just one additional mortgage payment per year can shave years off your loan.
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Recast after prepayment – Recasting your mortgage after a large principal paydown can lower your payments to help pay down the balance faster.
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Pay bi-weekly – Making half payments every other week reduces interest and accelerates payoff.
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Monitor home value – Regularly checking home value estimates can alert you if you qualify for appraisal-based cancellation.
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Improve your home – Strategic renovations like a kitchen upgrade can raise your home value to help lower your LTV.
Little adjustments like these over time can potentially save you thousands in mortgage insurance premiums.
The Bottom Line
Removing PMI from an FHA loan can result in substantial savings over the life of your mortgage. Take the time to understand your loan’s specific guidelines and cancellation options. With a structured approach, you can take proactive steps toward eliminating your monthly mortgage insurance premiums.
The payoff for navigating this process is well worth it. So don’t let PMI stick around longer than necessary. Use this guide to formulate a strategic plan tailored to your loan and home equity position. Taking a proactive approach to requesting cancellation when eligible is key to maximizing your mortgage savings.
How To Remove FHA Mortgage Insurance: Step-By-Step
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How to Eliminate Mortgage Insurance Premium from FHA Loans?
FAQ
Can PMI be removed from an FHA loan?
Can I get PMI removed if home value increases?
Do I have to wait 2 years to remove PMI?
Can I remove PMI from my mortgage payment?
Some types of loans don’t let you make payments ahead of time for the purpose of mortgage insurance removal. You can remove PMI from your monthly payment once you have 20% equity in your home. You can do this either by requesting its cancellation or refinancing the loan.
Do you need PMI on a FHA loan?
PMI (private mortgage insurance) is required on conventional loans with less than 20 percent down of the home’s purchase price. But the rules are different for home buyers using an FHA loan. All FHA loans require mortgage insurance premium (MIP), regardless of down payment size.
How do I drop PMI on an FHA loan?
There are a few ways to drop PMI on an FHA loan. The best option is to make a larger down payment. If you put down at least 10% on an FHA loan, you’ll only have to pay PMI for 11 years. If you put down 22% or more, PMI will be automatically removed. Another option is to refinance your FHA loan into a conventional loan.
How do I get rid of PMI before buying a house?
You may be able to get rid of PMI earlier by asking the mortgage servicer, in writing, to drop PMI once your mortgage balance reaches 80% of the home’s value at the time you bought it. Here’s a closer look at those options and two others for getting rid of PMI. These apply only to private mortgage insurance for conventional loans.