Can You Get Rid of PMI on an FHA Loan?

Private mortgage insurance (PMI) is an extra cost many homebuyers face when they put down less than 20% on a conventional loan. With an FHA loan, you pay mortgage insurance premiums (MIP) no matter how much you put down. This additional monthly expense can add up over the life of your mortgage.

So can you remove PMI or MIP from an FHA loan? The short answer is yes – sometimes. Here’s what you need to know about canceling mortgage insurance with an FHA loan.

What is MIP on FHA Loans?

An FHA loan is a government-backed mortgage insured by the Federal Housing Administration Because the FHA insures these loans, you pay both upfront and annual mortgage insurance premiums.

The upfront premium is 1.75% of the base loan amount, and can be rolled into your loan. The annual premium is 0.85% of your loan balance, divided into monthly payments. On a $200,000 loan, you’d pay about $170 per month in FHA MIP.

FHA MIP serves the same purpose as PMI on conventional loans – it protects the lender in case you default. But there are key differences between FHA MIP and PMI:

You pay MIP on all FHA loans, regardless of your down payment. With a conventional loan, you can avoid PMI by putting down 20% or more.
MIP tends to be more expensive than PMI.
The rules for canceling MIP are stricter than for PMI.

Can I Get Rid of MIP on My FHA Loan?

Whether and how you can cancel MIP depends largely on when you got your FHA loan:

FHA loans from July 1991 to December 2000 – No MIP cancellation You’ll pay the annual premium for the full loan term

FHA loans from January 2001 to June 2013 – Your MIP cancels automatically when you reach 78% loan-to-value (LTV) by paying down your loan balance.

FHA loans after June 2013 – If your down payment was less than 10%, you’ll pay the annual MIP for the full loan term. With a down payment of at least 10%, your MIP will cancel after 11 years.

So if you have an older FHA loan (from before June 2013) and have built up enough home equity, you may be eligible to have your MIP automatically cancelled by your servicer.

For newer FHA loans, MIP removal is much tougher. You’ll either pay premiums for 11 years or the full loan term, unless you refinance.

How to Remove MIP from an FHA Loan

You have a couple options if you want to get rid of mortgage insurance premiums on an FHA loan:

1. Request cancellation – If your loan terms and home equity allow you to cancel MIP, contact your servicer to request removal. Stopping FHA MIP isn’t automatic in most cases. The servicer should cancel your premiums as long as you meet the criteria and your mortgage payments are current.

2. Refinance to a conventional loan – If you don’t qualify to cancel MIP on your current FHA loan, refinancing to a conventional mortgage can eliminate the premiums. You’ll need enough home equity to get a loan with 20% down to avoid private mortgage insurance. Run the numbers to see if refinancing makes sense for your situation.

3. Refinance to a new FHA loan – Refinancing into a new FHA mortgage can potentially lower your interest rate and monthly payments enough to offset the cost of MIP. But you’ll still have to pay the upfront funding fee and annual premiums. Carefully compare costs vs. savings to decide if this is worthwhile.

4. Use a streamline refi to lower MIP – An FHA streamline refinance lets you refinance into a new FHA loan without an appraisal. If your home value has increased, refinancing through a streamline could let you cancel MIP by getting your LTV ratio below 78%.

5. Modify your loan – If you’re struggling to make payments, your servicer may agree to modify your FHA loan. This potentially lets you add missed payments to the loan balance, reducing your LTV ratio and possibly making you eligible for MIP cancellation.

Tips for Canceling FHA Mortgage Insurance

Follow these tips to maximize your chances of removing MIP from an FHA-insured mortgage:

Make additional payments – Making extra principal payments will help you build equity and reach the 78% LTV threshold more quickly.
Recoup your home value – If your home has gained value since you purchased it, a new appraisal showing the appreciation can help you cancel MIP sooner by lowering your LTV ratio.
Improve your credit – Having a credit score above 580 will make it easier to refinance out of an FHA loan and into a conventional mortgage without PMI.
Review your timeline – Crunching the numbers can help determine if you’ll reach 78% LTV before your FHA loan turns 11 years old. That will tell you if refinancing makes sense.
Consider a modified mortgage – Ask your lender if changes to your loan like extending the term or amortization period can help you become eligible for MIP cancellation.

Alternatives to FHA MIP Removal

Canceling MIP on an FHA loan can be difficult or impossible, depending on your situation. If you can’t remove your mortgage insurance premiums, here are a few alternative options:

Ask your lender about obtaining a credit for the amount of MIP you’ve paid to date. They can apply this credit toward closing costs if you refinance.
Consider switching from an FHA loan to a USDA or VA mortgage. These government-backed loans don’t require upfront or monthly mortgage insurance payments.
Explore down payment assistance programs in your state. These can provide grants to help you make a 20% down payment and qualify for a conventional loan without PMI.
If you can’t cancel MIP but want lower monthly payments, ask your servicer about an extended loan term or loan modification. This can potentially drop your payments enough to offset the cost of insurance premiums.
Make bi-weekly instead of monthly mortgage payments. This can help you pay down your loan principal faster so you reach the 78% LTV threshold quicker.

The Bottom Line

Removing mortgage insurance from an FHA loan can save you thousands of dollars over the life of your mortgage. But actually canceling those premiums can be difficult or restricted based on your specific loan and circumstances.

Use the strategies above to see if you can cancel FHA MIP and start saving on your monthly payments. If you can’t get rid of the premiums, look into alternatives that can ease the impact of those ongoing insurance costs.

Upfront mortgage insurance premium

UFMIP is a one-time fee that you’ll need to pay when you close on your home. This fee is typically 1.75% of your total loan amount.

For instance, if you’re entering the real estate market with a $200,000 loan, you’d be looking at a UFMIP of $3,500. This can either be paid in cash at closing or rolled into your mortgage, adding to the base loan amount. If you choose to roll it into your loan, it will slightly increase your monthly mortgage payments.

Keep in mind that if you later decide to refinance for FHA mortgage insurance removal from an FHA loan to a conventional loan, this upfront fee is not refundable. Although you may be entitled to a partial FHA MIP refund if refinancing into another FHA loan within three years.

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.

How to Eliminate Mortgage Insurance Premium from FHA Loans?

FAQ

Can I remove my PMI on my FHA loan?

“After sufficient equity has built up on your property, refinancing from an FHA or conventional loan to a new conventional loan would eliminate MIP or PMI payments,” says Wendy Stockwell, VP of operations support and product development at Embrace Home Loans. “This is possible as long as your LTV is at 80% or less.”

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.

Can I remove PMI if my home value increases?

You can typically remove PMI if market conditions lead to a significant increase in your home’s value. You have to make a request with your lender and order a new appraisal.

Can you get rid of 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 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 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.

Can you refinance a FHA loan with no PMI?

So for FHA mortgage insurance removal, you’d need to refinance out of your FHA loan. The good news is that there are no restrictions on refinancing out of FHA into a conventional loan with no PMI. Plus, there are never any prepayment penalties on FHA loans. So you can mortgage refinance any time you want.