Can PMI be removed from FHA loan?

Can PMI be removed from FHA loan?

Private Mortgage Insurance (PMI) is typically required on FHA loans when the borrower has made a down payment of less than 20%. PMI protects the lender in case the borrower defaults on the loan. While PMI can significantly increase the monthly mortgage payment, it is possible to have it removed if certain conditions are met.

1. Reaching 20% Equity:

In order to have PMI removed from an FHA loan, the borrower must reach 20% equity in their home. This can be achieved through a combination of paying down the loan balance and appreciation of the property's value. Once the borrower has reached this threshold, they can request the removal of PMI from their lender.

2. Timely Payment History:

In addition to reaching 20% equity, the borrower must also have a good payment history. This means making all mortgage payments on time and in full. Late payments can delay the removal of PMI, so it is crucial to establish a solid payment history prior to making the request.

3. Property Appraisal:

In some cases, the lender may require a property appraisal to confirm that the home's value has not decreased since the loan was originated. If the appraisal shows that the home's value has declined, it may affect the borrower's eligibility for PMI removal. Therefore, it is important to ensure that the property's value has either remained the same or increased.

4. Automatic Termination:

For FHA loans originated after June 3, 2013, PMI will be automatically terminated once the borrower reaches 78% loan-to-value (LTV) based on the original value of the home. This means that no further action is needed from the borrower to have PMI removed. However, if the borrower wishes to have PMI removed earlier, they can follow the steps mentioned above.

5. Refinancing:

If the borrower is unable to reach 20% equity or their loan is not eligible for the automatic termination of PMI, they may consider refinancing their FHA loan into a conventional loan. Conventional loans do not require PMI if the borrower has made a down payment of at least 20% or if they have reached 20% equity in the home.

In conclusion, PMI can be removed from an FHA loan once the borrower reaches 20% equity, has a good payment history, and satisfies any additional requirements set by the lender. It is crucial to diligently monitor the loan balance, property value, and payment history to take advantage of PMI removal opportunities. Refinancing into a conventional loan may also be a viable option for borrowers who are unable to meet the requirements for PMI removal on their FHA loan.

Frequently Asked Questions

Yes, PMI can be removed from an FHA loan, but there are specific conditions that must be met.

To remove PMI from an FHA loan, you must reach a certain loan-to-value ratio (LTV). If your LTV is below 78% and you have made timely payments, you can request the removal of PMI.

Your loan-to-value ratio can be calculated by dividing the loan amount by the appraised value of the property. Multiply the result by 100 to get the percentage.

PMI on an FHA loan is required for the life of the loan if you made a down payment of less than 10%. If you made a down payment of 10% or more, PMI can be removed after 11 years.

If you have an FHA loan with a 15-year term, PMI will be automatically canceled once your loan-to-value ratio reaches 78%, regardless of the length of time you have had the loan.