Can You Drop PMI on an FHA Loan?

Private mortgage insurance (PMI) is an extra cost required for some home loans. Specifically, PMI applies to conventional loans with less than 20% down payment. This insurance protects the lender in case the borrower defaults. With an FHA loan, this insurance is called mortgage insurance premium (MIP) and works differently than PMI. So can you remove MIP like you can PMI? Let’s take a closer look.

What is MIP on FHA Loans?

FHA loans are government-backed mortgages that allow borrowers to buy a home with as little as 3.5% down. This lower barrier to entry comes with a trade-off: mortgage insurance premiums for the life of the loan.

MIP serves the same purpose as PMI – protecting the lender if the borrower defaults But unlike PMI, there is no set point where MIP automatically cancels FHA borrowers pay an upfront premium at closing of 1.75% of the loan amount. They also pay an annual premium ranging from 0.45% to 1.05% of the loan amount.

When Does MIP Disappear on an FHA Loan?

There are a few scenarios where MIP will cancel automatically on an FHA loan:

Loans originated between 2001 and 2013 – MIP cancels once the loan reaches 78% of the original value. This usually occurs from paying down the mortgage balance over time
Loans originated after 2013 with 10% down – MIP disappears after 11 years of on-time payments
Refinanced FHA loans – The time rules reset when you refinance, meaning you’ll pay MIP for 11 years or until 78% LTV is reached again.

Unless you qualify for one of those situations, MIP continues for the entire loan term on FHA mortgages. The annual MIP rate does drop once your principal balance reaches 78% of the original purchase price.

Removing MIP by Refinancing

If your loan doesn’t qualify for MIP cancellation, you can remove it by refinancing to a conventional mortgage. Here are some key points on refinancing an FHA loan:

You’ll need a loan-to-value ratio below 80% to avoid private mortgage insurance (PMI) on the new loan.
Closing costs for the refinance can range from 2% to 5% of the balance. Make sure potential savings exceed this cost.
Check that your credit score has improved since getting the FHA loan. Better credit means better refinance rates.
Consider both rate and payment when comparing the FHA loan to a new conventional mortgage.

Tips for Removing MIP

Here are some tips to remove MIP from an FHA loan as fast as possible:

Make extra payments – Adding even $50 or $100 per month will help you reach the 78% LTV threshold faster.
Recast after renovation – If you complete a major remodel, get the home reappraised. Recasting the loan based on the new value can instantly lower your LTV ratio.
Monitor home values – Appreciating real estate values lower your LTV as well. Request appraisal edits periodically to adjust for this.
Pay down before refinancing – Reducing the balance beforehand results in a lower LTV on the refinance loan.

Alternatives to Refinancing to Remove MIP

If refinancing doesn’t make sense for your situation, here are a couple other options for removing MIP:

Take out a HELOC – Paying off the FHA loan with funds from a home equity line of credit (HELOC) eliminates the MIP.
Sell and buy another property – This lets you get a fresh loan with ideally 20% down to avoid mortgage insurance altogether.

The Bottom Line

Removing MIP from an FHA loan hinges on hitting key loan-to-value thresholds. These are 78% LTV for older loans or 11 years of payments for newer ones. Otherwise, your main options are refinancing or tapping home equity. Consider the costs carefully before refinancing solely to eliminate MIP.

can you drop pmi on fha loan

How much does FHA MIP cost?

MIP costs vary depending on a number of factors, including your mortgage term and down payment amount. Lower monthly mortgage insurance premiums are typically associated with shorter terms and larger down payments.

FHA UMIP is 1.75% of the base loan amount. For example, if you have a $200,000 loan, the UFMIP would be $3,500. This can either be paid in cash at closing or rolled into the loan amount.
MIP: Variable depending on loan size, term, and LTV ratio, but can range from 0.45% to 1.05% of the loan amount, divided into 12 monthly payments and added to your regular mortgage payments.

Below is the full breakdown of the current MIP cost for FHA mortgages with terms of over 15 years.

Original Loan Amount	Loan to Value Ratio	Annual MIP
$726,200 or less	≤ 90%	0.50%
$726,200 or less	>90% and ≤ 95%	0.50%
$726,200 or less	>95%	0.55%

Although nobody wants to pay MIP, it is a critical aspect of the FHA loan program. It helps lenders offer loans to those with lower credit scores or first-time home buyers who might not qualify for other types of mortgages.

Completing the underwriting process

Upon meeting the conventional financing requirements, your lender will assist you with the rest of the application and approval journey.

Once your refinancing is finalized, your new conventional loan will take the place of your previous FHA loan. This means you’ll no longer need to pay premiums and your FHA mortgage insurance removal is complete.

As a bonus, you might also get a lower interest rate via the refinance process, provided your personal finances are strong enough to qualify for a better rate.

How to Eliminate Mortgage Insurance Premium from FHA Loans?

FAQ

How do I get rid of my PMI on an FHA loan?

If your payments are current and in good standing, your lender is required to cancel your PMI on the date your loan is scheduled to reach 78% of the original value of your home. If you have an FHA loan, you’ll pay MIP for either 11 years or the entire length of the loan, depending on the terms of the loan.

Can you avoid PMI on an FHA loan?

Since MIP is required on all FHA loans regardless of down payment size, the traditional method of avoiding PMI by making a 20% down payment does not apply. The only way to eliminate MIP costs is by refinancing into a conventional loan without PMI when you have built enough equity in your home.

How long do you have to carry PMI on a FHA loan?

For recent FHA loans, you will need to pay insurance premiums for at least 11 years, and you may need to pay them for the life of the loan. Some FHA homeowners refinance into a Conventional loan to stop paying for mortgage insurance. Learn more about how to stop paying for mortgage insurance.

Can I drop PMI without refinancing?

A borrower can request PMI be canceled when they’ve amassed 20 percent equity in the home and lived in it for several years. There are other ways to get rid of PMI ahead of schedule: refinancing, getting the home re-appraised (to see if it’s increased in value), and paying down your principal faster.

Can I drop PMI on an FHA loan?

If you cannot drop PMI on an FHA loan, you can still take some steps to remove it. Once you have paid off at least 20% of your loan, you can request your lender remove PMI. But you may need to meet certain criteria, such as making on-time payments and having no late payments in the past year.

Do FHA loans require PMI?

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. So you will have to pay FHA mortgage insurance even if you put down 20 percent or more. Can PMI be removed from FHA loans?

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.

Can I drop MIP If I took out an FHA loan?

You cannot drop MIP if you took out an FHA loan on or after June 3, 2013. FHA mortgage insurance may last until you’ve paid off your loan, unless you put down enough when you bought your home. Learn about down payment requirements.