Can You Get Rid of PMI on an FHA Loan?

Figuring out how to get rid of PMI (private mortgage insurance) on an FHA loan can be confusing, so we’ve done the research to make it easier to understand. But first, please understand one important fact: FHA loans do NOT carry PMI. Instead FHA loans may have a Mortgage Insurance Premium (MIP). The two insurance types are not the same and are regulated very differently, with different rules and stipulations. Again: FHA loans can only carry MIP, not PMI — it’s a common misconception about mortgage insurance that is worth clarifying before we dive deeper…

Private mortgage insurance (PMI) is an additional cost required by most lenders when your down payment is less than 20% of the purchase price. With an FHA loan, this insurance is called mortgage insurance premiums (MIP). MIP is typically more expensive than PMI on conventional loans, and harder to remove However, it is possible to get rid of MIP on an FHA loan in certain situations

FHA Loan Basics

FHA loans are popular options for first-time homebuyers because they require lower down payments – just 35% of the purchase price, This reduced down payment requirement comes with a tradeoff you have to pay MIP for the life of the loan

MIP protects the lender in case you default on the mortgage. On a traditional 30-year FHA loan, you’ll pay an upfront MIP of 1.75% of the loan amount plus an annual MIP of 0.45% to 1.05% of the loan amount. Over the life of the loan, you could end up paying tens of thousands in MIP.

When Can MIP Be Removed on FHA Loans?

Whether you can cancel MIP on an FHA loan depends on two factors:

When you originated the loan: FHA guidelines for removing MIP have changed over the years. Loans originated between July 1991 and December 2000 generally can’t have MIP cancelled. Loans originated after January 2001 may be eligible for MIP cancellation based on equity accumulation.
Your equity stake: For FHA loans originated after January 2001, MIP can be cancelled automatically by the lender once you reach:
- 22% equity with a 10-year loan term
- 22% equity with a 15-year loan term
- 20% equity with a 30-year loan term

Reaching these thresholds requires paying down your mortgage principal over time and/or benefiting from home price appreciation. You must also be current on your mortgage payments.

Strategies for Removing MIP

If your FHA loan doesn’t qualify for automatic cancellation, you still have options for getting rid of MIP:

Refinance to a conventional loan: With 20% equity or more, you may qualify to refinance to a conventional mortgage and avoid PMI. Run the numbers to see if potential savings outweigh refinancing costs.
Pay down principal: Making extra mortgage payments directly to principal can help you reach 20% equity faster. Recasting or modifying your loan could also lower your balance.
Wait for appreciation: As your home increases in value, your equity stake does too. Monitor prices to see if you’re nearing 20% equity.
Make improvements: Boosting your home’s value through renovations can grow your equity. Keep projects within your budget.
Sell and buy again: You’ll start fresh without MIP when buying a new home. But closing costs and rate changes could outweigh benefits.

Weighing the Pros and Cons of Removing MIP

Canceling FHA MIP can lower your housing costs, potentially saving you thousands over your loan term. However, there are also factors to consider:

Pros

Lower monthly mortgage payments
Reduce total interest paid over loan’s life
Free up cash flow for other goals

Cons

Refinancing costs and complications
Higher rate on new conventional loan
Lose benefits of FHA protections

Do the math to see if dropping MIP makes sense for your situation. While it can be a challenge, removing this expensive insurance from an FHA home loan is possible with proper planning. Monitor your equity, research refinancing, and discuss options with your lender.

can you get rid of pmi on fha loan

What if the new lender still requires PMI?

If you’re trying to refinance but are told you’ll still have PMI payments, there are a few options you have. First, consider if the PMI that would be charged on the new loan would be less than what you’re currently paying. If so, it could still be beneficial to go through with the refinance, even if you’re not able to get rid of PMI entirely.

Secondly, consider if the new loan would make it easier to cancel PMI. For instance, eliminating mortgage insurance on conventional loans is typically far simpler than it is for FHA MIP. As long as an appraisal shows you are at an 80% LTV or lower, you can stop paying PMI. Unlike FHA mortgage insurance removal, there are no caveats on things like when your loan was opened, what your initial down payment was, or your loan term.

Lastly, you could also try disputing the lender’s valuation of your home.

What’s the difference between PMI and MIP on an FHA loan?

PMI applies only to conventional loans that have a down payment of less than 20%. Lenders typically sell conventional loans to either Fannie Mae or Freddie Mac, who each have their requirements for when PMI is needed. MIP on the other hand, applies to FHA loans.

So what is the purpose of PMI or MIP? Both are designed to protect lenders in the event a borrower is unable or unwilling to make payments, and will typically be required on higher-risk loans. Monthly mortgage insurance premiums can easily amount to several hundred dollars a month, and because it offers no benefit to you as the borrower, is something you should try to have removed as quickly as possible to lower your monthly mortgage payments.

How to Eliminate Mortgage Insurance Premium from FHA Loans?

FAQ

Can I get PMI removed from 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.

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 PMI be removed if home value increases?

If home values have gone up in your area or you’ve made a lot of improvements to your home, you could have more than 20% equity based on the home’s current value. Providing the loan-to-value ratio with a new appraisal value meets the lender’s requirements, you may be able to get PMI taken off.