Eliminating PMI From FHA Loans

PMI is normally required on home loans with under a 20% downpayment. Most people who use FHA have low down payments and will thus be responsible for PMI every month. The amount is based on a percentage of the amount borrowed and might make up a significant part of the monthly payment. People thus have every incentive for eliminating PMI from FHA loans, but updated policies have altered how PMI removal can take place.

PMI Guidelines

In 2013, FHA made important edits to PMI rules. The changes apply to loans with case numbers generated after June 3, 2013. In the past, all FHA loans had a set clause where PMI was eliminated when the amount owed reached a pre-determined percentage. This no longer applies. There are now different sets of policies depending on several factors. This article covers two typical loan scenarios.

Loans With Greater than 10% Down Payments

For 30 year FHA loans with a down payment of 10% or higher, removing PMI is possible if 2 criteria are met. First, the mortgage must be at least 11 years old. Furthermore, the balance of the mortgage must be 78% or less than the starting price or current market value.

Mortgages for More than 90% LTV

For 30 year FHA loans with down payments lower than 10% (commonly 3.5%), removing PMI is not permitted. PMI is due for the entire life of the loan regardless of the remaining principal. The only way to eliminate PMI for this kind of mortgage is to refinance.

Eliminating PMI From FHA Loans

Eliminating PMI from FHA loans is not as simple as it was previously. Most buyers turn to FHA for its low down payment option. It is important to understand that PMI can no longer be automatically eliminated from these loans. People with FHA case file numbers produced before June 3, 2013 do not need to be concerned about this change. There are also other exceptions such as streamline refinances of home loans endorsed before May 31, 2009 and Home Equity Conversion Mortgages. Speak with loan officer for additional information.

About Scott Beard

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