PMI is usually included in home loans with under 20% down. Most buyers who opt for FHA have little to put down and will thus be responsible for PMI each month. The premium is calculated based on the beginning principal of the loan and can account for a large part of the monthly payment. Homeowners therefore benefit from eliminating PMI from FHA home loans, but updated rules have changed how this occurs.
In 2013, FHA changed PMI rules. The changes relate to loans with case numbers pulled later than June 3, 2013. In the past, all FHA home loans automatically had PMI terminated when the principal reached a particular amount. This is no longer true. There are now separate policies depending on several factors. Below is an overview of two typical types of loans.
Loans With More than 10% Down Payments
For 30 year FHA home loans with a down payment of 10% or more, removing PMI is possible. There are two specific criteria. First, PMI must have been paid for a minimum of 11 years on that loan. Also, the amount owed must be 78% or lower than the purchase price or current appraised value.
Loans for Greater than 90% LTV
For 30 year FHA home loans where the down payment is less than 10% (such as the 3.5% minimum), removing PMI is not possible. PMI stays in place for the entire term of the mortgage regardless of the remaining balance. A borrower's only solution for eliminating PMI from FHA home loans of this type is to refinance it into a completely new loan.
Eliminating PMI From FHA Home Loans
Eliminating PMI from FHA home loans is not as straight forward as it was previously. Most borrowers turn to FHA for its low down payment requirement. It is helpful to understand that PMI can no longer be removed from these mortgages. Home buyers with FHA case file numbers pulled before June 3, 2013 need not be concerned about this. There are also other exemptions such as streamline refinances of home loans endorsed prior to May 31, 2009 and Home Equity Conversion Mortgages. Contact your loan officer for additional details.