Getting PMI Removed from an FHA Loan: A Complete Guide for 2023

Private mortgage insurance (PMI) is an extra cost that many homebuyers with FHA loans face. While PMI provides protection for the lender if you default it also adds to your monthly mortgage payments. For many borrowers getting rid of PMI can be a top priority.

In this complete guide, we’ll cover everything you need to know about removing PMI from an FHA loan. We’ll look at:

• What is PMI and why it’s required for FHA loans
• FHA PMI cancellation guidelines
• Steps to take to request PMI removal
• Tips for qualifying for cancellation
• Alternatives like refinancing if you can’t cancel yet

Let’s get started!

What is PMI and Why Do FHA Loans Require It?

Private mortgage insurance is an insurance policy that protects the lender if you stop making payments on your home loan. Since FHA loans allow down payments as low as 3.5%, borrowers with less than 20% equity are required to pay PMI.

On a conventional loan, you can usually request PMI cancellation once you reach 20% equity in the home. But FHA loans have different guidelines that make removing PMI more challenging.

When you get an FHA loan, you’ll pay two types of PMI premiums:

• Upfront mortgage insurance premium (UFMIP) – 1.75% of loan amount, paid at closing
• Annual mortgage insurance premium (MIP) – 0.85% of loan balance per year

For a $200,000 loan amount, you’d pay a $3,500 UFMIP upfront. Then you’d pay $1,700 per year for annual MIP, or about $142 per month.

Over the life of a 30-year FHA loan, you could pay over $30,000 in PMI premiums. So it’s easy to see why borrowers are eager to get rid of this added cost.

Next let’s look at the cancellation guidelines.

FHA PMI Cancellation Guidelines

The main criteria for removing PMI from an FHA loan depends on two factors – when you originated the loan and how much you put down:

Loans originated before June 3, 2013

• Cancel PMI once you reach 78% loan-to-value (LTV) ratio
• Happens automatically when you reach 78% LTV through payments and appreciation

Loans originated after June 3, 2013

• Cancel PMI after 11 years if you put down 10% or more
• Otherwise, you’ll pay annual MIP for the life of the loan

You can also request cancellation if you refinance into a new FHA loan at below 78% LTV.

So if you put down less than 10%, expect to keep paying PMI for the long haul. Let’s look at the step-by-step process to request cancellation if you do meet requirements.

Steps to Request PMI Removal from an FHA Loan

If you qualify to cancel PMI based on origination date and down payment, here are the steps to take:

1. Confirm you meet eligibility requirements

• Review origination date and down payment amount
• Check that your loan is in good standing
• Calculate your current loan-to-value ratio

2. Contact your loan servicer

• Ask them to review your eligibility for PMI cancellation
• Provide any requested documentation

3. Get written confirmation of PMI cancellation

• Make sure cancellation date is provided
• Double check new mortgage payment amount

4. Verify PMI drops off your monthly bill

• Expect to see lower payment starting the next billing cycle
• Follow up with servicer if PMI charges continue

Be prepared to provide evidence like pay stubs, tax returns, and proof of home improvements to confirm your current LTV ratio.

Now let’s go over some tips to improve your chances of qualifying for PMI removal.

Tips for Qualifying for FHA PMI Cancellation

Since FHA guidelines make PMI cancellation difficult, focus on these areas to improve your odds:

1. Boost your home’s value

Adding renovations like a remodeled kitchen or new roof can increase your home’s appraised value. Just be sure to use licensed contractors and get the proper permits. This appreciation can help drive down your LTV faster.

2. Make extra mortgage payments

Making an extra principal payment each month will help you build equity quicker. Auto-pay half of your monthly payment every two weeks to get an extra payment in per year.

3. Refinance at a lower balance

If you can qualify to refinance into a new FHA loan at below 78% LTV, you can remove PMI through the refi. Crunch the numbers to see if it makes sense.

4. Wait for home values to rise

Especially in hot markets, rising home prices over several years can grow your home equity enough to shed PMI. Patience and keeping up with maintenance can pay off.

Use any combination of these strategies to give yourself the best shot at hitting that magic 78% LTV ratio.

What If You Can’t Cancel PMI Yet? Alternatives to Consider

Not everyone will be able to cancel PMI quickly (or ever) under current FHA guidelines. Here are two alternatives to consider if you can’t remove PMI from your FHA loan yet:

1. Refinance to a conventional loan

Conventional loans allow PMI cancellation at 80% LTV, which is an easier hurdle. As long as you have good credit, you may be able to qualify for a conventional loan refinance and ditch PMI that way.

2. See if lender offers PMI recast option

Some lenders let you recast your mortgage after making a lump sum payment. This can help you reach 78% LTV faster. Ask if your lender offers rate and PMI recasting.

The bottom line is that removing PMI from an FHA loan is tough. But not impossible if you’re diligent about building equity and understanding guidelines.

Use this guide to make a plan to request PMI cancellation successfully or look at alternatives like refinancing. With persistence, you can rid yourself of monthly mortgage insurance payments.