PMI is typically required on loans for more than 80% of thee purchase price. Most homeowners who select FHA have little down payment funds and will therefore be responsible for PMI on a monthly basis. The premium is calculated using the beginning balance of the loan and may represent a significant part of the monthly payment. Homeowners thus will save money when eliminating PMI from FHA home loans, but updated policies have changed how this occurs.
In 2013, FHA made important changes to PMI rules. These apply to home loans with case numbers granted after June 3, 2013. In the past, all FHA home loans had a standard clause for elimination of PMI when the principal was paid down to a specific amount. This no longer applies. There are now separate policies depending on a few factors. This article details two common scenarios.
Mortgages With Greater than 10% Down
For 30 year FHA home loans where borrowers submit a down payment of 10% or more, removing PMI is an option. There are two specific criteria. First, the loan must have been activate for at least 11 years (during which PMI fees were paid). Additionally, the remaining balance must be 78% or less than the original price or current appraised value.
Mortgages for Greater than 90% Loan-to-value
For 30 year FHA home loans with down payments lower than 10% (such as the 3.5% minimum), terminating PMI is not an option. PMI continues for the entire term of the loan despite how much is paid down. A borrower's only solution for eliminating PMI from FHA home loans in this category is to refinance it into a new mortgage.
Eliminating PMI From FHA Home Loans
Eliminating PMI from FHA home loans is not as straight forward as it used to be. Most people choose FHA for the low 3.5% down payment option. It is helpful to know that PMI cannot no longer be automatically eliminated from these mortgages. Home buyers with FHA case file numbers generated prior to June 3, 2013 need not be concerned about this change. There are also other exemptions such as streamline refinances of home loans endorsed before May 31, 2009 and Home Equity Conversion Mortgages. Speak with loan officer for further information.