How to Remove PMI From an FHA Loan

Federal Housing Administration (FHA) loans make it possible for many people who couldn’t otherwise access mortgages to purchase homes. However, FHA borrowers are required to pay mortgage insurance premiums (MIP) to protect lenders in case they default.

On a conventional loan, this type of insurance is called private mortgage insurance (PMI). Both MIP and PMI accomplish the same objective: protecting the lender’s investment if the buyer can’t keep making mortgage payments.

MIP can be costly, so you might wonder: Is FHA mortgage insurance removal possible? In some cases, it may be. Here’s a closer look at how to remove PMI from FHA loans.

Can you remove PMI from an FHA loan? How it works

Your ability to remove MIP from your FHA loan primarily depends on when your loan originated. In some cases, the amount of your down payment also plays a role.

FHA loans originated before June 3, 2013

If you took out your FHA loan between July 1991 and December 2000, you don’t have the option to cancel your mortgage insurance premiums. Unless you refinance, you’ll need to keep paying MIP over the life of your loan.

The FHA changed the rules for mortgage insurance for loans issued between January 2001 and June 3, 2013, though. If your loan’s origination date falls within this window of time, the FHA will usually cancel your MIP once you reach a loan-to-value (LTV) ratio of 78%.

Your loan-to-value ratio is the ratio of your remaining loan balance to the appraised value of your home. By the time your LTV ratio drops to 78%, you’ve built a significant amount of equity in your home, and your risk of default is lower.

FHA loans originated on or after June 3, 2013

Starting on June 3, 2013, the FHA changed the MIP rules again. For loans originating on this date or later, whether you can cancel your MIP depends on your down payment:

• If Your Down Payment Was 10% or More: Your MIP will be canceled after 11 years
• If Your Down Payment Was Less Than 10%: You must pay MIP over the life of the loan

If your original down payment was less than 10%, you may be able to remove MIP by refinancing with a conventional mortgage.

How to remove PMI from FHA loans (pre-2013 loans)

If you have a pre-2013 loan, keep track of your loan-to-value ratio. If you reach an LTV ratio of 78% and you’re still paying mortgage insurance premiums, get in touch with your loan servicer to ask about removing them.

Refinance into a conventional loan to eliminate MIP

If you’re wondering how to remove PMI from FHA loans, refinancing to a conventional loan may be an option. However, before you go this route, consider whether it makes sense for your particular situation and whether you qualify.

When refinancing makes sense

Because conventional loans have more stringent credit requirements, there’s a chance you could be approved for one with a higher interest rate than your FHA loan. Generally, refinancing this way only makes sense if you can secure a lower interest rate.

Credit score and equity requirements

Typically, to refinance with a conventional loan, you must meet the following requirements:

• You must have at least 20% equity in your home (a loan-to-value ratio of 80% or less)
• Your credit score must be at least 620

Remember that if you refinance this way, you’ll normally be responsible for closing costs on your new loan. Closing costs tend to fall between 2% and 5% of the total value of the loan. Before signing on the dotted line, it can be helpful to use a mortgage refinance calculator to see if your long-term savings outweigh the upfront cost of refinancing.

Let us help you improve your credit before refinancing

In many cases, refinancing to a conventional loan is the most efficient strategy for FHA mortgage insurance removal. However, conventional loans usually have higher credit score requirements than FHA loans. Taking the time to work on your credit before you apply can increase your chances of approval.

Kikoff is here to help you make meaningful strides in your credit journey. We connect our members to interest-free lines of credit and report their on-time payments to credit bureaus, allowing them to build positive credit histories. We also offer a wide variety of other credit-building tools to help you get closer to your financial goals.

We don’t check your credit when you sign up, and it’s free to join. Get started with us today.