Today we’re going to be talking about removing your PMI on an FHA loan. Can you remove your mortgage insurance, how long do you have to wait, what are the circumstances and rules on getting that pesky extra payment that you have every month off of your mortgage bill.
PMI….PMI stands for private mortgage insurance and the truth is that on an FHA it’s actually not called PMI – it’s called MI. Why is that? Well, FHA’s mortgage insurance is government so it’s not private, so calling it PMI on an FHA is actually mispeaking but since most people refer to it as PMI I might slip and call it PMI myself. You might also hear it referred to as MIP – which stands for Mortgage Insurance Premium…any way you slice it it’s that annoying extra amount of money you pay on your mortgage that you want to get rid of.
There are 3 ways to remove your mortgage insurance on an FHA loan
Method #1 Refinance
Believe it or not, this is the most common way to get rid of your Mortgage Insurance on an FHA loan. Getting the MI removed on an FHA can be a pain and oftentimes if the rates are favorable it makes a lot more sense to just refinance the loan into a conventional loan to get the mortgage insurance removed.
The rule is that if you own at least 20% of the appraised value of the property you can refinance into a conventional without having to get mortgage insurance. This might be easier than it actually sounds for two reasons – 1, you’ve been paying your FHA loan so your equity in the property has increased over time and 2, property values are high.
So if you bought an FHA property with only 3.5% down and it was worth $400,000 at the time but it’s not worth $500,000 in the current market, getting a new loan without mortgage insurance is going to be the quickest and easiest way to lower your payment because you now own more than 20% of the house just by the very nature of the value of the house rising with the market.
I’ve done more than a dozen loans in the last year where the main motivation for someone to do the refinance was just to get rid of the mortgage insurance payment – and believe it or not that holds true for people who aren’t even in an FHA program – sometimes people have mortgage insurance on a conventional loan and they’re refinancing just to get rid of the mortgage insurance even on the conventional loan.
Before I get into the other 2 methods of getting rid of your MI payment I just wanted to remind you to take a second and click on that like and subscribe button and to remember to click the bell icon to get notifications for when more helpful mortgage videos like this are released. We’re always coming out with new tips, tricks, and secrets to getting the best mortgage for your house or rental property so make sure you subscribe to the channel, watch the videos and get educated so you can get a great rate.
Method #2 wait it out
Now this method doesn’t apply to everyone, and in fact it’s quite rare. You can actually wait until your MI expires on an FHA loan if, and this is the big if, you came in with 10% down when you purchased the property. Most people who do FHA loans come in with the minimum at 3.5% and unfortunately, if you came in with anything less than 10% down the Mortgage insurance stays on the loan for the life of the loan…but if you’re in that unique situation where you got an FHA more because of a credit score issue than the down payment minimum and you happen to have come in with 10% or more in the down payment then you can wait for the mortgage insurance to expire which is, drum roll please….11 years.
It may sound like a long time, but there are instances where I’ve had borrowers call me up and they’ve already been living there for 8 or 9 years so the idea of waiting it out kind of made sense for them because they had a pretty low rate.
This is a pretty unique situation and oftentimes refinancing makes more sense even than waiting a year or two but it’s definitely an option that is available for some people so I would be remiss in not mentioning it here as it is, indeed, viable for some.
Method #3 pay off the loan
Method #3 for getting rid of your mortgage insurance is paying off the loan
If you have enough cash to suddenly pay off your entire loan or, and this is the more common scenario, you are thinking of selling your home, that would obviously get rid of your mortgage insurance because the loan is being paid off in full so you would longer have a mortgage insurance payment….nor would you have a loan at all.