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Many homebuyers taking out an FHA loan wonder, “Does PMI go away on FHA loans?” The short answer is no, PMI does not go away on FHA loans. However, FHA loans have mortgage insurance called MIP, not PMI. And MIP does not automatically disappear like PMI.
What is PMI and MIP?
First, it’s important to understand the difference between private mortgage insurance (PMI) and FHA mortgage insurance premiums (MIP).
PMI is required on conventional loans when borrowers put down less than 20% as a down payment PMI protects the lender in case the borrower defaults. Once you reach 20% equity in the home through payments and appreciation, you can request PMI cancellation
MIP is required on all FHA loans regardless of down payment size. MIP also protects the lender but works differently than PMI. FHA guidelines determine when and if MIP can be removed.
In other words, PMI is for regular loans and MIP is only for FHA loans. FHA loans have MIP instead of PMI, which is why PMI doesn’t go away on those loans.
FHA Mortgage Insurance (MIP) Rules
The rules for canceling MIP depend on when you got your FHA loan:
FHA loans from July 1991 to December 2000: MIP is required for the life of the loan. There is no way to remove MIP unless you refinance.
FHA loans from January 2001 to June 2013: MIP cancels automatically when you reach 78% loan-to-value ratio through payments and appreciation.
After June 2013, if you get an FHA loan and put down less than 10%, you will have to pay MIP for the life of the loan. You can cancel your MIP automatically after 2011 years if you put down 10% or more.
As you can see, there aren’t many ways to get rid of MIP on an FHA loan. People who took out a loan after 2001 are the only ones who might be able to cancel MIP, and certain conditions must be met.
How to Remove MIP from an FHA Loan
If your FHA loan does not qualify for automatic cancellation, there are still a couple options to remove MIP:
1. Refinance to a conventional loan
The most common way to get rid of MIP is to switch from an FHA loan to a regular mortgage. You can refinance to a conventional loan and skip mortgage insurance altogether as long as you have at least 20% equity.
2. FHA Streamline Refinance
With an FHA Streamline Refinance, you refinance your existing FHA loan into a new FHA mortgage. This does not eliminate MIP, but could potentially lower your interest rate and monthly payments.
3. Cancel with Home Appreciation
If your home has appreciated significantly in value since you bought it, you may now have 20% equity even if you originally put down less. In this case, you can request your servicer to re-evaluate your LTV ratio and cancel MIP if you now have 20% equity.
Should You Try to Remove MIP?
Eliminating mortgage insurance premiums seems appealing. But before pursuing MIP cancellation, consider:
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Interest rates – Make sure mortgage rates now are lower than your existing FHA loan. Otherwise refinancing may not save money.
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Closing costs – Refinancing and appraisal fees can be $2,000 – $6,000. Ensure costs are worth the long-term savings.
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Qualifications – You’ll need a 620+ credit score and debt-to-income ratio under 50% for most conventional refinances.
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Equity position – Confirm you have at least 20% equity before attempting to remove MIP.
Do the math and speak to a loan officer to see if pursuing MIP cancellation makes financial sense for your situation. While removing MIP provides savings, refinancing too early can cost you more.
Alternatives If MIP Removal Isn’t Feasible
If you don’t qualify to cancel FHA mortgage insurance, here are a few options to reduce payments:
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Ask your lender about a rate/term modification to lower your interest rate
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Make extra principal payments to pay off your loan faster
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Refinance a second mortgage like a HELOC for better terms
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Request an MIP refund if you sell/refi within 3 years of getting your FHA loan
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Chloe Moore, CFP®, is the founder of Financial Staples, a virtual, fee-only financial planning firm based in Atlanta and serving clients nationwide.
At Bankrate, we take the accuracy of our content seriously.
“Expert verified” means that our Financial Review Board thoroughly evaluated the article for accuracy and clarity. The Review Board comprises a panel of financial experts whose objective is to ensure that our content is always objective and balanced.
Their reviews hold us accountable for publishing high-quality and trustworthy content.
Bankrate is always editorially independent. While we adhere to strict , this post may contain references to products from our partners. Heres an explanation for . Our is to ensure everything we publish is objective, accurate and trustworthy. Bankrate logo
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.
Bankrate follows a strict editorial policy, so you can trust that we’re putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts, who ensure everything we publish is objective, accurate and trustworthy.
Our mortgage reporters and editors focus on the points consumers care about most — the latest rates, the best lenders, navigating the homebuying process, refinancing your mortgage and more — so you can feel confident when you make decisions as a homebuyer and a homeowner. Bankrate logo
Bankrate follows a strict editorial policy, so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions.
We value your trust. Our mission is to provide readers with accurate and unbiased information, and we have editorial standards in place to ensure that happens. Our editors and reporters thoroughly fact-check editorial content to ensure the information you’re reading is accurate. We maintain a firewall between our advertisers and our editorial team. Our editorial team does not receive direct compensation from our advertisers.
Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information. Bankrate logo
How to get rid of mortgage insurance on an FHA loan
The most important factor determining whether your FHA mortgage insurance premium can be canceled is the date your loan was originated.
Here’s how eligibility breaks down by loan origination date:
- If your origination date was between July 1991 and December 2000: You can’t cancel your FHA mortgage insurance premiums. You’ll need to keep paying them for the life of the loan.
- If your origination date was between January 2001 and June 3, 2013: Your MIP is typically canceled when you reach a loan-to-value (LTV) ratio of 78 percent.
- If your origination date was after June 3, 2013 and you made a down payment of at least 10 percent: Your MIP will be canceled after 11 years. For down payments of less than 10 percent, you’ll pay MIP for the life of the loan.
Learn more:
How to Eliminate Mortgage Insurance Premium from FHA Loans?
FAQ
How long does PMI last on an FHA loan?
FHA loan mortgage insurance, called MIP (Mortgage Insurance Premium), lasts for the life of the loan if the down payment is less than 10%. If the down payment is 10% or more, MIP is required for 11 years.
Can I get rid of PMI on an FHA loan without refinancing?
There is no way to remove FHA PMI without refinancing. You have to refinance to conventional and the next lender will make the choice to require PMI or not. Also keep in mind they have slightly different names.
Can you avoid PMI on an FHA loan?
If you want to get rid of PMI on an FHA loan, the best and most common way is to refinance into a conventional mortgage. This could mean not having to pay an annual MIP fee, possibly lower interest rates, and longer loan terms. Jul 19, 2024.