How to Get Rid of PMI on an FHA Loan

For many homeowners with FHA loans, Private Mortgage Insurance (PMI) can feel like an unnecessary burden—an extra monthly cost that doesn’t directly contribute to paying off the mortgage. While PMI helps protect lenders, it can weigh heavily on homeowners’ budgets over time. How do you get rid of PMI on an FHA loan? We published this article to consider the proven strategies for removing PMI, helping you reduce your expenses and take control of your mortgage. Isn’t it time your money worked for you, not the lender?

What is PMI on an FHA Loan?

FHA loans, backed by the Federal Housing Administration, require borrowers to pay mortgage insurance premiums (MIP) rather than traditional PMI. However, the concept is similar: mortgage insurance protects lenders if the borrower defaults on the loan.

FHA loans typically require both an upfront premium and an annual premium divided into monthly payments.

For FHA loans originated after June 3, 2013, the rules surrounding PMI removal changed. Depending on your loan term and down payment amount, PMI could stay on for the life of the loan—unless you take specific steps to eliminate it.

How to Remove PMI from an FHA Loan

While FHA rules can make it challenging to remove PMI, it isn’t impossible. Below are some effective strategies to rid yourself of PMI, allowing you to save on monthly mortgage payments. Let’s consider proven solutions for how to eliminate FHA mortgage insurance​ in 2024.

1. Refinance to a Conventional Loan

One of the most straightforward ways to remove PMI on an FHA loan is to refinance into a conventional loan. Once your home equity reaches 20% or more, conventional loans no longer require PMI. The RefiGuide will show you how to remove FHA mortgage insurance​ by connecting you with conventional lenders.

Why keep paying for mortgage insurance when you can eliminate it by switching to a more favorable loan?

To make refinancing worthwhile, ensure that current interest rates are comparable to or lower than your FHA loan rate. This approach not only removes PMI but can also reduce your monthly payments if you secure a better rate. Refinancing does involve closing costs, so factor those into your calculations to ensure it makes financial sense.

Think of refinancing as hitting the reset button on your mortgage, allowing you to leave unnecessary expenses, like PMI, behind.

2. Pay Down Your Loan Balance

For homeowners who aren’t ready to refinance, aggressively paying down the loan balance can be another route to eliminate PMI. If your loan originated before June 3, 2013, PMI can be removed once your loan-to-value (LTV) ratio reaches 78%.

This strategy requires you to make extra payments toward the principal, reducing the overall loan amount faster. By lowering the LTV ratio, you meet the lender’s requirements for PMI removal.

Wouldn’t it feel liberating to watch your mortgage shrink while saving on unnecessary insurance premiums?

3. Wait for Natural Appreciation to Build Equity

If housing prices in your area are rising, natural home appreciation could help you reach the 20% equity threshold needed to eliminate PMI. As your home value increases, your loan-to-value ratio improves, bringing you closer to the day when you no longer have to pay mortgage insurance.

You’ll need to contact your lender to request a new appraisal if you believe your home has appreciated significantly. If the appraisal confirms your home’s increased value, you can refinance to remove PMI or petition the lender to eliminate it directly.

4. Explore FHA Streamline Refinance Loan

For homeowners looking to refinance without extensive paperwork or a credit check, an FHA Streamline Refinance may be an appealing option. This refinancing program is designed to reduce your monthly mortgage payment and interest rate without requiring a full appraisal or detailed income verification.

While FHA Streamline Refinancing doesn’t eliminate MIP, it could reduce your overall mortgage expenses. Additionally, it offers an opportunity to transition to a conventional loan later if your financial situation improves, helping you eventually get rid of PMI. Apply for a FHA loan online.

5. Pay Off Your Loan Quicker

Another option is to shorten your loan term by making additional payments. If you switch to a 15-year mortgage or make biweekly payments instead of monthly ones, you’ll pay down your balance more quickly. The faster you pay off your loan, the sooner you can eliminate PMI, either through refinancing or by reaching the required LTV ratio.

Paying off your mortgage faster is like sprinting toward the finish line—you exert more effort upfront, but the reward of financial freedom comes sooner.

Does PMI Stay for the Life of Your FHA Loan?

For many FHA loans taken out after 2013, the MIP requirement lasts the entire loan term if your down payment was less than 10%. Unfortunately, in these cases, the only way to eliminate PMI is by refinancing into a conventional loan.

Why carry an unnecessary financial burden for 30 years when refinancing offers a fresh start?

Benefits of Removing PMI on an FHA Loan

1. Lower Monthly Payments: Without PMI, your mortgage payments will decrease, freeing up money for other financial goals.
2. Improved Cash Flow: Eliminating PMI can give you more breathing room in your budget, helping you save or invest.
3. Greater Financial Freedom: Removing PMI puts you one step closer to owning your home outright.

Drawbacks to Consider PMI on FHA Loans

1. Refinancing Costs: While refinancing can remove PMI, it involves closing costs that may offset your savings.
2. Appraisal Fees: If you need a new appraisal to prove your home’s increased value, be prepared to pay for it.
3. Market Risks: Relying on home appreciation can be risky if property values stagnate or decline.

FAQ for FHA Loans and PMI

What are FHA mortgage insurance premiums?

FHA Mortgage Insurance Premiums (MIPs) are extra fees that borrowers must pay to the Federal Housing Administration (FHA) to secure their loan. These premiums come in two forms:

Upfront MIP: A one-time fee paid at closing, calculated as a percentage of the home’s purchase price.
Monthly MIP: A portion of the annual MIP, added to the borrower’s monthly mortgage payment.

MIPs are mandatory for all FHA loans, regardless of the borrower’s credit score or down payment amount. The purpose of MIP is to protect the lender by reducing the risk associated with the loan in case the borrower defaults.

How much is PMI on an FHA loan​?

The mortgage insurance premiums (MIP) on an FHA loan are a required cost for borrowers, designed to protect lenders against potential default. MIP consists of two components: an upfront premium and an annual premium that is divided into monthly payments.

The upfront MIP is 1.75% of the loan amount, paid at the time of closing. For example, if you take out a loan of $200,000, the upfront MIP would be $3,500. Borrowers have the option to pay this amount upfront or roll it into the loan balance, which increases the monthly mortgage payments slightly.

Even with a poor credit FHA loan, the mortgage insurance premium monthly payment is the same.

The annual MIP ranges from 0.45% to 1.05% of the loan amount, depending on the loan term, loan amount, and loan-to-value (LTV) ratio. For loans with an LTV ratio over 90% and terms longer than 15 years, the MIP is typically 0.85%. On a $200,000 loan, that translates to $1,700 per year, or about $141 per month added to your mortgage payment.

The exact MIP rate depends on factors such as the loan size and down payment. Borrowers who put down less than 10% will be required to pay MIP for the life of the loan, while those who make a down payment of 10% or more can have it removed after 11 years.

MIP on FHA loans can increase monthly housing costs significantly, so it’s important to factor this expense into your budget when considering an FHA mortgage.

What is the Difference Between MIP and PMI on FHA Loans?

PMI stands for Private Mortgage Insurance and it applies exclusively to conventional loans with down payments of less than 20%. PMI is a loosely used word referring to paying mortgage insurance monthly. These traditional loans are typically sold to Fannie Mae or Freddie Mac, which have specific requirements for when PMI is needed. In contrast, MIP (Mortgage Insurance Premiums) are required for FHA home loans, regardless of the down payment amount.

Why do some lenders require PMI and MIP? Both serve to protect lenders and banks in case a borrower is unable or unwilling to make payments, and are generally required for higher-risk loans. These insurance premiums can easily add hundreds of dollars to your monthly mortgage payments. Since MIP or PMI doesn’t offer any direct benefit to the borrower, it’s wise to eliminate these fees as soon as possible to reduce your monthly payment burden.

Is PMI still Tax Deductible?

Legislation allowing PMI to be tax-deductible was introduced in 2006, applying the deduction to policies issued starting with the 2007 tax year. Although the provision has been periodically extended, it expired after the 2021 tax year. As of now, PMI is no longer deductible for the 2022 tax year and beyond.

Takeaway on How to Remove PMI from FHA Mortgage​ Loans

Eliminating PMI from an FHA loan requires planning, but the payoff can be significant. Whether through refinancing, extra payments, or waiting for appreciation, homeowners have multiple paths to reduce their mortgage costs and achieve financial freedom sooner.

Getting rid of PMI is like shedding unnecessary weight—you’ll feel lighter, freer, and more in control of your financial future.

By evaluating your financial situation and exploring the best option for your needs, you can say goodbye to PMI and hello to savings. So why wait? Start working toward PMI removal today and take one step closer to owning your home outright.

The RefiGuide will help you shop for the top mortgage lenders for free and show you how to get FHA mortgage insurance removal​ with the best possible solution for your needs.

References

Bankrate. (2023). How to remove PMI from your mortgage.

Experian. (2023). What is PMI and how do you get rid of it?

The Mortgage Reports. (2023). Removing PMI: A step-by-step guide.