Are you tired of paying private mortgage insurance (PMI) on your FHA loan? You’re not alone. Many homeowners want to remove PMI from their FHA loan to save money on their monthly mortgage payments. Fortunately, there are several ways to do it. In this article, we’ll discuss how to remove PMI from FHA loan and the different options available to you.
What is PMI?
PMI is a type of insurance that protects the lender in case the borrower defaults on their loan. For FHA loans, PMI is required on all loans with a down payment of less than 20%. The premium for PMI is added to your monthly mortgage payment, making it more expensive.
How to Remove PMI from FHA Loan?
Option 1: Wait for Automatic Termination
Under the Homeowners Protection Act, PMI must be automatically terminated when your loan-to-value (LTV) ratio reaches 78%. This means you have paid off 22% of your loan. However, if you have made extra payments or your property value has increased, you can request to have PMI removed earlier.
Option 2: Request PMI Cancellation
You can request to have PMI removed once you have reached 20% equity in your home. This means you have paid off 20% of your loan or your property value has increased. You will need to contact your lender and provide them with proof of your current LTV ratio.
Option 3: Refinance Your FHA Loan
If you can’t wait for automatic termination or meet the requirements for PMI cancellation, you can refinance your FHA loan into a conventional loan. Conventional loans do not require PMI if you have at least 20% equity in your home. However, you will need to meet the credit and income requirements for a conventional loan.
FAQs
Q: How much does PMI cost?
A: The cost of PMI varies depending on the size of your down payment and your credit score. On average, PMI costs between 0.3% to 1.5% of the original loan amount per year.
Q: How do I know when I have 20% equity in my home?
A: You can determine your current LTV ratio by dividing your current loan amount by your property value. If your LTV ratio is less than 80%, you have at least 20% equity in your home.
Q: Can I remove PMI from my FHA loan if I have bad credit?
A: It may be more difficult to remove PMI from your FHA loan if you have bad credit. However, you can still try to request PMI cancellation or refinance your loan into a conventional loan.
Conclusion
Removing PMI from your FHA loan can save you money on your monthly mortgage payments. You can wait for automatic termination, request PMI cancellation, or refinance your loan into a conventional loan. If you’re unsure which option is best for you, contact your lender for guidance.