FHA loans require PMI for the full loan term, regardless of equity position. Your only option to remove PMI is to refinance into a conventional loan once you have 20%+ equity. Reappraisal alone won't remove PMI on an FHA mortgage.
For FHA loans opened on or after June 3, 2013
Most home buyers with newer FHA loans will have a harder time canceling their annual MIP payments. That's because the FHA made annual MIP permanent for many borrowers starting in 2013.
You can avoid paying PMI by providing a down payment of more than 20% when you take out a mortgage. Mortgages with down payments of less than 20% will require PMI until you build up a loan-to-value ratio of at least 80%. You can also avoid paying PMI by using two mortgages, or a piggyback second mortgage.
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 from FHA loans? No, FHA loan PMI removal is technically impossible because PMI is for conventional mortgages only. FHA loans have MIP, which usually lasts 11 years or the life of the loan. To remove MIP, you must refinance into a conventional loan once you have enough equity.
They can increase your monthly expenses and make it harder to qualify for a loan. So it's no wonder that everyone wants to avoid PMI when they buy a home. But that's not the whole story. In fact, savvy homebuyers and investors use PMI to make money.
Monthly MIP: The Mortgage Insurance Premium (MIP) is the FHA's version of PMI, a monthly payment that protects lenders in case of loan default. This ranges from 0.40% to 0.75% depending on your down payment, home price and loan term.
The Bottom Line: Removing PMI Can Help Ease Your Financial Burden. Mortgage insurance gives many home buyers the option to pay a smaller amount upfront for their downpayment. However, it increases the monthly payment until you're able to remove it.
If you can afford it, putting 20% down on a house is ideal. It helps you avoid private mortgage insurance (PMI), reduces your loan amount, and lowers monthly payments.
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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.
Single-premium PMI
Depending on the terms of the loan, you can either pay this in full at closing or roll the amount into the loan for a higher balance. If you pay it upfront, you'll get the benefit of lower monthly mortgage payments.
If you have reached the required amount of equity, you can request PMI removal from your lender or loan servicer. To remove PMI, you will need to follow a few steps: Determine if you have reached the required amount of equity. Use the appraisal report to calculate your home's equity.
If you put 20% down on an FHA loan, you would pay a lower annual mortgage insurance premium. The premium requirement would also stop after 11 years. However, if you have 20% to put down and your credit score is 620 or higher, you may want to pursue a conventional loan instead.
An FHA loan may be a better option if you have a lower credit score, a higher DTI ratio, or less money saved for a down payment. On the other hand, a conventional loan may work better if your finances are sound and you can qualify for favorable loan terms.
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.
If you meet the eligibility requirements to remove MIP from an FHA loan, your mortgage servicer should automatically cancel the premiums once you meet the criteria (a 78 percent LTV ratio or 11 years, depending on the loan). That's assuming you're in good standing with a record of on-time mortgage payments.
You can remove PMI, or private mortgage insurance, from your mortgage after you have established enough equity in your home. You will need at least 20% in equity. At that point, you can request to have it removed or wait for it to automatically drop off when you have 22% in equity.
FHA mortgage loans don't require PMI, but they do require an Up Front Mortgage Insurance Premium and a mortgage insurance premium (MIP) to be paid instead. Depending on the terms and conditions of your home loan, most FHA loans today will require MIP for either 11 years or the lifetime of the mortgage.
But in general, the cost of private mortgage insurance, or PMI, is about 0.5 to 1.5% of the loan amount per year. This annual premium is broken into monthly installments, which are added to your monthly mortgage payment. So a $300,000 loan would cost around $1,500 to $4,500 annually — or $125 to $375 per month.
Mortgage insurance protects lenders against losses if you're unable to make your payments and default on your loan. FHA loan mortgage insurance is generally more expensive than conventional mortgage insurance because FHA lenders take on more risk approving loans to lower-credit-score borrowers.
Put 10% Down with No PMI by Using a Piggyback Loan
The other 10% required to make up a 20% down payment comes from a second loan, worth 10% of the home's value. That second loan “piggybacks” on the mortgage. It's completely separate which means it will have its own terms and interest rate.
Timely payments count when it comes to getting rid of PMI. Late payments can put you in a high-risk category, making canceling harder. No other liens. Your mortgage must be the home's only debt, including second mortgages, home equity loans and lines of credit.
A “piggyback” second mortgage is a home equity loan or home equity line of credit (HELOC) that is made at the same time as your main mortgage. Its purpose is to allow borrowers with low down payment savings to borrow additional money in order to qualify for a main mortgage without paying for private mortgage insurance.