Can You Cancel PMI on an FHA Loan?

Getting an FHA loan can be a great way for many homebuyers to purchase a home especially first-time buyers who may not have a lot saved for a down payment. The low down payment requirements and flexible credit guidelines of FHA loans make them accessible to more borrowers.

However, FHA loans require you to pay mortgage insurance premiums (MIP) for the life of the loan, unless you refinance. This can add a significant monthly expense on top of your mortgage payment. So a common question for FHA borrowers is – can you cancel PMI on an FHA loan?

The short answer is yes you may be able to cancel MIP on your FHA loan under certain circumstances. Keep reading to learn more about when and how you can get rid of mortgage insurance premiums with an FHA loan.

When Can You Remove MIP from an FHA Loan?

Whether or not you can cancel MIP on your FHA mortgage depends on a few key factors

• When you originated your loan – FHA guidelines for removing MIP depend on when you originally took out the loan.

• Your down payment amount – How much you put down also affects eligibility for canceling mortgage insurance.

• Your current loan-to-value (LTV) ratio – Your remaining loan balance compared to the home’s value is another criteria.

Here’s an overview of the cancellation policy based on when your FHA loan originated:

• FHA loans from July 1991 to December 2000 – Unfortunately, you cannot cancel MIP at all if your loan originated during this timeframe. The MIP will remain in place for the entire loan term unless you refinance.

• FHA loans from January 2001 to June 2013 – For these loans, MIP can be removed once you reach 78% LTV through payments and appreciation.

• FHA loans after June 2013 – If your down payment was at least 10%, MIP will automatically be removed after 11 years. With a down payment under 10%, you’ll pay MIP for the life of the loan.

How to Cancel MIP on an Eligible FHA Loan

If you meet the criteria to remove mortgage insurance from your FHA loan based on when it originated and your equity position, here are the steps to take:

• Request cancellation – Contact your mortgage servicer to formally request cancellation of MIP. This should happen automatically, but it doesn’t hurt to call and verify.

• Confirm eligibility – Your servicer will review your loan details and home value to confirm you’ve met the requirements to remove MIP.

• Receive approval – Once approved, your servicer will remove the MIP charge from your monthly mortgage payment starting the following month.

That’s all there is to it! As long as you meet the eligibility criteria, cancelling FHA MIP is a smooth process that your mortgage servicer will handle for you.

You’ll simply see your monthly mortgage payment decrease starting the next billing cycle once MIP is removed. This can save you hundreds of dollars per year.

Can I Remove MIP Sooner by Refinancing?

If your current FHA loan doesn’t yet meet the requirements for MIP cancellation, you may be wondering if you can remove it sooner by refinancing to a conventional loan. This is certainly possible, but there are some key factors to consider:

Mortgage rates – It may only make sense to refinance if current rates are at least 0.75% lower than your existing FHA loan. This ensures the costs are justified by the monthly savings.

PMI requirements – With a conventional loan you may still have to pay PMI if your LTV is above 80%. But PMI may be cheaper than FHA MIP.

Closing costs – There will be fees to refinance that need to be weighed against your savings.

Your credit – If your score has improved since getting the FHA loan, you may now qualify for better loan programs.

A mortgage broker or lender can help assess if refinancing now makes sense for your situation. While you’ll likely pay some form of mortgage insurance either way, a refi could potentially secure you a better rate or terms.

Tips for Removing MIP Sooner

If you don’t yet meet the requirements to cancel FHA mortgage insurance premiums, here are some tips that can help you get rid of MIP sooner:

• Make additional principal payments to pay down your loan faster
• Complete renovations or improvements to boost your home value
• Refinance once you have 20% equity to avoid PMI
• Ask lender about “streamline” refinance to lower rates/costs
• Apply any windfalls or bonuses towards your mortgage

The closer you can get your LTV ratio to 78%, the quicker you can say goodbye to mortgage insurance premiums.

Alternatives to FHA If Wanting to Avoid Mortgage Insurance

For some borrowers, the permanent requirement for FHA MIP may be a dealbreaker. If you want to avoid mortgage insurance entirely, here are some alternatives to an FHA loan:

• Conventional 97 – Only 3% down payment required, with no PMI if you have good credit. But will have stricter approval criteria than FHA.

• Piggyback loan – Combines a first and second mortgage to cover your down payment, avoiding MI. But interest rates may be higher.

• USDA loan – Requires no down payment in rural areas, with no ongoing mortgage insurance. Limited to specific home locations.

• VA loan – No down payment or mortgage insurance required for eligible veterans and service members. Must meet VA underwriting guidelines.

While it takes some extra planning, there are mortgage options out there to buy a home without mortgage insurance if you want to avoid it.

The Bottom Line

FHA loans make buying a home more affordable for many, but the trade off is higher monthly costs due to mortgage insurance premiums. Luckily there are scenarios where persistent borrowers can meet requirements to remove MIP from an FHA loan and start saving.

If you have an FHA mortgage, be sure to check the guidelines to see if you might be eligible to cancel mortgage insurance based on factors like your loan age, down payment, and current home equity. This can potentially put hundreds of dollars each month back in your pocket.