PMI is typically included in loans with lower than 20% down. Most individuals who select FHA have little down payment funds and will thus require PMI on a monthly basis. The premium is based on a percentage of the loan principal and can make up a large percent of the monthly payment. Borrowers thus will realize savings when removing PMI from FHA home loans, but new guidelines have altered how PMI removal can take place.
PMI Guidelines
In 2013, FHA made important modifications to PMI rules. These apply to home loans with case numbers granted later than June 3, 2013. In the past, all FHA home loans had a standard clause where PMI was eliminated when the loan approached a specific amount. This no longer applies. There are now separate rules depending on several variables. This article details two typical loan scenarios.
Mortgages Under 90% Loan-to-value
For 30 year FHA home loans where borrowers make a down payment of 10% or higher, removing PMI is possible if 2 conditions are met. First, PMI must have been paid for at least 11 years on that mortgage. Additionally, the amount owed must be 78% or less than the purchase price or present appraised value.
Loans Greater Than 90% LTV
For 30 year FHA home loans where the down payment is less than 10% (such as the 3.5% minimum), eliminating PMI is not allowed. PMI is due for the entire term of the loan despite the balance. The only way to get rid of PMI is to refinance.
Removing PMI From FHA Home Loans
Removing PMI from FHA home loans is not as simple as it was in the past. Most borrowers choose FHA for its low down payment option. It is helpful to understand that PMI may not be removed from these loans. People with FHA case numbers pulled before June 3, 2013 do not need to worry about this. Also, there are other exemptions such as streamline refinances of mortgages endorsed prior to May 31, 2009 and Home Equity Conversion Mortgages. Call your loan officer for further information.
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