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.
FHA Loan: Cons
Here are some FHA home loan disadvantages: An extra cost – an upfront mortgage insurance premium (MIP) of 2.25% of the loan's value. The MIP must either be paid in cash when you get the loan or rolled into the life of the loan. Home price qualifying maximums are set by FHA.
You don't have to refinance to remove a PMI early. You just need an appraisal, which you would have to pay for, so it still may not be worth it.
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.
Many customers ask us if FHA loans have mortgage insurance which they often call "PMI," which stands for private mortgage insurance. You are required to pay mortgage insurance on FHA loans, but the mortgage insurance on these loans is called a mortgage insurance premium (MIP), not PMI.
Some reasons a seller might refuse an FHA loan include misconceptions about longer closing times, stricter property requirements, or the belief that FHA borrowers are riskier.
Since your home must meet FHA property minimums, the appraisal process may include more requirements than a conventional home loan. The appraisal is required to be performed by an FHA approved appraiser and may have additional inspections which could result in a higher appraisal cost.
Yes, PMI is removed once your loan balance drops to 78% of your home's original value. You can also proactively request to cancel PMI payments when you reach an 80% loan-to-value ratio. How to avoid PMI with a jumbo loan? Jumbo loans, which exceed Fannie Mae and Freddie Mac loan limits, don't always require PMI.
Generally, once you reach 20% equity or when you pay your loan balance down to 80% of the purchase price of your home, you can request that your lender or servicer remove PMI from your monthly mortgage payment.
Yes, a lender can refuse to remove PMI. For instance, if your property does not appraise as expected or you do not satisfy a requirement, a lender can reject your request. However, if you meet the requirements, you can request the removal of PMI.
If you have an FHA-insured mortgage, these options may be available to you. Informal or Formal Forbearance Plan: A Forbearance plan allows a borrower to work with their mortgage servicer to temporarily pause or reduce their monthly mortgage payments and may provide specific terms for repayment.
Why? They feel that buyers who can secure any other financing option are 'stronger buyers. ' FHA buyers have a reputation for having low credit scores, little money to put down, and less than optimal qualifying requirements. Sellers want a 'sure thing' when they sell their home.
Must have an undamaged exterior, foundation and roof. Must have safe and reasonable property access. Must not contain loose wiring and exposed electrical systems. Must have all relevant utilities, including gas, electricity, water and sewage functioning properly.
For instance, the minimum required down payment for an FHA loan is only 3.5% of the purchase price.
Unfortunately, sellers often perceive the FHA loan approval process as risky because of the FHA's relatively lenient financial requirements and stricter appraisal and property standards.
Upfront insurance: When you put down less than 20%, you must pay for mortgage insurance. FHA loans come with two types of insurance. There's an upfront charge of 1.75%, and some borrowers choose to wrap that fee into the loan balance.
The property needs to be free of known hazards that affect health and safety, the home's use, or may affect the structural soundness of the house and its marketability. These include, but are not limited to: Toxic chemicals. Radioactive materials.
Refinance to a conventional loan
If you don't qualify for automatic removal — or you do, but want to lose the MIP sooner — you might consider refinancing your FHA loan to a conventional loan. With a conventional loan, you may cancel PMI once you've reached 20 percent equity in your home.
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.
Request PMI removal: You can request the cancellation of PMI once your LTV ratio reaches 80% of the property's original value or lower. You may have to submit a formal request to your loan provider, along with documentation such as proof of home value and a solid payment history.