How To Remove PMI from an FHA Loan Without Refinancing

Getting an FHA loan can help you become a homeowner even if you have a low credit score or limited funds for a down payment. But FHA loans come with a big catch – you have to pay mortgage insurance premiums (MIP) for the life of the loan. This extra monthly payment can really add up over the years.

Luckily, you may be able to remove the MIP from your FHA loan and stop paying those expensive premiums. Here’s what you need to know about canceling MIP on an FHA mortgage.

What is MIP on an FHA Loan?

MIP stands for mortgage insurance premiums. All FHA loans require this type of insurance which helps protect the lender in case you stop making payments.

There are two types of MIP on FHA loans:

Upfront MIP – This is a one-time premium of 1.75% of the loan amount paid at closing. On a $200,000 loan, it would equal $3,500.
Annual MIP – An ongoing premium equal to 0.85% of the loan amount paid monthly. For a $200,000 loan balance, you’d pay about $142 per month.

Borrowers pay these premiums to access FHA financing which only requires a 3.5% down payment and is available even with lower credit scores. But these ongoing costs can really add up. On a 30-year $200,000 FHA loan, you’d pay over $26,000 in just annual MIP.

Luckily, you may be able to remove PMI from your FHA mortgage and stop paying these expensive premiums.

FHA Loans Before June 2013 Allow MIP Cancellation

If you got your FHA loan approved prior to June 3, 2013, you can request cancellation of your annual MIP payments once you reach:

78% loan-to-value (LTV) ratio
Your loan is current on payments

For example, if you originally borrowed $200,000 on a home valued at $250,000 by the FHA appraiser, you’d reach 78% LTV once your balance drops to $195,000.

To request MIP cancellation on these older FHA loans, contact your mortgage servicer. Stopping annual MIP could save you over $100 per month.

New FHA Loans Require 11 Years of MIP

FHA loans closed on or after June 3, 2013 have stricter MIP rules. These loans require annual MIP payments for the entire life of the loan unless you meet special criteria

For these modern FHA mortgages, MIP will only cancel automatically if

You make a down payment of at least 10%
11 years have passed since getting the loan

With a 10% down FHA loan, you’d pay the annual MIP premium for 11 years before it expires. If you put down less than 10%, you’ll pay the monthly premium until you pay off the loan or refinance.

The FHA made this change to earn more revenue off its loan program. But the good news is you may still be able to remove MIP through refinancing if your home has gained equity.

Refinancing Can Eliminate FHA Mortgage Insurance

If you have an FHA loan issued after 2013 and didn’t put down 10%, your best bet for removing MIP is to refinance into a conventional mortgage.

Conventional loans don’t have monthly MIP payments. And you can usually qualify to refinance into a conventional loan once you have:

At least 20% equity
A credit score of 620 or higher

Based on today’s home values, many FHA borrowers can now reach 20% equity even if they originally put down less than 10%. This milestone opens the door for you to refinance into a conventional loan and say goodbye to monthly MIP.

Just remember that refinancing comes with closing costs. Make sure you can recoup those fees within a few years to make the refi worthwhile. Shop around with multiple lenders to find the best possible interest rate and keep your new monthly payment affordable.

Options to Remove PMI from FHA Loans

Here are your main options for getting rid of MIP payments on an FHA mortgage:

Older FHA Loans (Pre June 2013)

Request cancellation once you reach 78% loan-to-value ratio

Newer FHA Loans (Post June 2013)

Refinance to a conventional loan with 20% equity
Pay loan down to 78% LTV through extra payments (talk to lender)
Make 10% down payment and wait 11 years for MIP to expire

No matter what type of FHA loan you have, making extra payments can help you reach milestones for mortgage insurance cancellation sooner. Even an extra $100 per month can help you build equity faster.

FHA Streamline Refinance Lets You Keep MIP

One option you may want to avoid is an FHA streamline refinance. This type of refi lets you refinance your existing FHA loan into a new FHA mortgage with lower interest rate.

But this type of refinance does not remove MIP from your loan. You’d keep paying the monthly premium on your new FHA mortgage. Only refinancing into a conventional loan can eliminate mortgage insurance.

Weighing the Pros and Cons of FHA vs Conventional

Is it worth refinancing into a conventional loan just to remove MIP? Here are some pros and cons to weigh:

Pros of Conventional Loan

No monthly MIP premiums
Potentially lower interest rate
PMI can be removed later on

Pros of FHA Loan

Lower credit score requirements
Low down payment options
Smaller upfront mortgage insurance premium

Crunch the numbers to see if potential savings from removing MIP outweigh the closing costs of refinancing. Conventional loans allow you to cancel PMI in the future as you build equity. But qualifying is harder.

Carefully compare interest rates, monthly payments, and home equity requirements to decide if switching to a conventional mortgage makes sense for your situation.

Tips for Canceling MIP on an FHA Mortgage

Here are some tips to keep in mind if your goal is removing PMI from an FHA home loan:

Make extra payments to build equity faster
Monitor your home value and loan balance to track equity
Refinance when you reach 20% equity or talk to lender about 78% LTV
Shop around for the best refi deal on interest rate and closing costs
Consider a cash-out refinance to pay closing costs if equity allows
Don’t forget about upfront MIP costs if refinancing into new FHA loan

With the right strategy, you can eliminate mortgage insurance premiums from your FHA home loan. This can free up money to put toward other financial goals each month.

Alternatives If You Can’t Cancel FHA MIP Yet

If you don’t yet have enough equity to refinance out of your FHA loan, focus on these alternatives in the meantime:

Make extra principal payments to build equity faster
Consider getting a roommate or renting out a room to bring in extra income
Refinance your FHA loan to reduce the interest rate and monthly payment amount
Ask lender about a modification to remove

How To Remove FHA Mortgage Insurance: Step-By-Step

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How to Eliminate Mortgage Insurance Premium from FHA Loans?

FAQ

How can I get rid of PMI on an FHA loan?

Your lender adds a PMI fee to your monthly payment, which you must pay until you reach 20% equity in your home. In other words, you must pay your loan balance down to 80% of your home’s original value. Once you reach this threshold, you can request cancellation.

Can I remove PMI if my home value increases?

Yes. If your home value increases — either by housing market trends or by you investing to upgrade the property — you may be eligible to request a PMI cancellation. You’ll likely need to pay for a home appraisal to verify the new market value, but that cost can be well worth it to avoid more PMI payments.

How can I remove PMI without refinancing?

There is no way to remove FHA PMI without refinancing. You have to refinance to conventional and the next lender will make the choice to require PMI or not. Also keep in mind they have slightly different names.

Why is it so hard to get PMI removed?

Many lenders (like Fannie Mae) also require a two-year “seasoning requirement,” meaning you can’t have PMI removed until you’ve made two years’ worth of on-time payments—even if your equity has grown above 20%. If it’s been less than five years, you might even be required to have 25% worth of equity.

How do I remove my FHA mortgage insurance premiums?

To remove your FHA loan’s mortgage insurance premiums, you’ll need to qualify under specific requirements. If your mortgage originated before June 3, 2013, you’d need to meet the following conditions: You’ve made all monthly mortgage payments on time. You’ve paid for at least 5 years of a 20, 25 or 30-year loan.

Can I remove PMI from my mortgage payment?

The first date you can make this request should appear on your PMI disclosure form, which you received along with your mortgage.If you’ve made additional payments that reduce the principal balance to 80%,

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.

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.