PMI on FHA loan. How do I kill it with fire?
July 15, 2015 11:55 AM Subscribe
I am attempting to figure out what it will take to drop the PMI from my mortgage payment and, wow, the internet is really leading me on all sorts of wild goose chases in attempting to figure out what the actual criteria are. Loan details within.
Loan origination: October 2013
Loan type: FHA
Down payment: I forgot how closing costs (which we actually rolled into the loan) figure into all of this, but let's just say we put about 5% down
If I understand correctly (which I very well might not, I need to have 60 payments and 20% (or 22% at most) equity in order to drop the PMI. But what does that *mean*?
Does my total paid Principal have to add up to 20% of the total value of the loan? Or 20% of my home's last tax assessment value? If the latter, does my down payment have any impact on that? Essentially, I'm trying to determine how much extra to pay on my Principal so that I hit both criteria for dropping PMI as soon as possible.
However, I've also seen some sources that say I actually need to refinance to a conventional mortgage in order to remove the PMI due to some recent changes. That was unexpected. I've got a handle on all the numbers and the time frames, I just need clarification on the actual rules that I'm playing by.
Loan origination: October 2013
Loan type: FHA
Down payment: I forgot how closing costs (which we actually rolled into the loan) figure into all of this, but let's just say we put about 5% down
If I understand correctly (which I very well might not, I need to have 60 payments and 20% (or 22% at most) equity in order to drop the PMI. But what does that *mean*?
Does my total paid Principal have to add up to 20% of the total value of the loan? Or 20% of my home's last tax assessment value? If the latter, does my down payment have any impact on that? Essentially, I'm trying to determine how much extra to pay on my Principal so that I hit both criteria for dropping PMI as soon as possible.
However, I've also seen some sources that say I actually need to refinance to a conventional mortgage in order to remove the PMI due to some recent changes. That was unexpected. I've got a handle on all the numbers and the time frames, I just need clarification on the actual rules that I'm playing by.
Best answer: Most FHA loans originated after June of 2013 require PMI for the life of the loan. This means you'd need to refinance (and pay the closing cost and get a new appraisal) in order to get rid of the PMI. The best way to check is to read your loan docs (or ask your lender).
one source
Loans before then required 60 payments and 22% equity. This means that the remaining principal balance has to be 78% or less of the purchase price of the house (or what the house was appraised for during a refinance). I didn't go through this, though, so it may also need a new appraisal, for some circumstances.
Again, the best thing to do is to ask the lender.
posted by ethidda at 12:14 PM on July 15, 2015 [5 favorites]
one source
Loans before then required 60 payments and 22% equity. This means that the remaining principal balance has to be 78% or less of the purchase price of the house (or what the house was appraised for during a refinance). I didn't go through this, though, so it may also need a new appraisal, for some circumstances.
Again, the best thing to do is to ask the lender.
posted by ethidda at 12:14 PM on July 15, 2015 [5 favorites]
However, I've also seen some sources that say I actually need to refinance to a conventional mortgage in order to remove the PMI due to some recent changes
As explained to me by my mortgage broker last year, this is the case since June of 2013. In order to get rid of PMI, you need to refinance. You'll have to talk to your lender to be sure, though.
posted by Pogo_Fuzzybutt at 12:16 PM on July 15, 2015 [2 favorites]
As explained to me by my mortgage broker last year, this is the case since June of 2013. In order to get rid of PMI, you need to refinance. You'll have to talk to your lender to be sure, though.
posted by Pogo_Fuzzybutt at 12:16 PM on July 15, 2015 [2 favorites]
On re-financing, it's been a while, but back in 2008 we were able to skip the PMI with a HELOC for the difference between 80% and our down-payment.
posted by straw at 12:16 PM on July 15, 2015
posted by straw at 12:16 PM on July 15, 2015
oops, I guess things have changed since I took out my loan in 2011 and you will be saddled with the PMI unless you refinance. Sorry for the misleading information.
posted by contraption at 12:20 PM on July 15, 2015
posted by contraption at 12:20 PM on July 15, 2015
I recently had questions about exactly this issue, and I called my lender and had a clear answer in two minutes flat. Call your lender and ask. It's much easier than trying to figure it out on the Internet, because FHA rules change so frequently.
posted by rabbitrabbit at 1:22 PM on July 15, 2015 [1 favorite]
posted by rabbitrabbit at 1:22 PM on July 15, 2015 [1 favorite]
Response by poster: Thanks everyone. Sounds like I missed the PMI-dropping window by a few months. Alas, the advice was much appreciated.
posted by JimBJ9 at 1:53 PM on July 15, 2015
posted by JimBJ9 at 1:53 PM on July 15, 2015
Not quite.
If you closed on your FHA loan before June 1, 2013, you are required to pay PMI for five years or until you have 78% LTV, whichever comes later.
If you closed on your FHA loan after June 1, 2013, you are required to pay PMI for eleven years or until you have 78% LTV, whichever comes later.
So, it sounds like you're stuck with PMI for 11 years unless you re-fi to a conventional loan.
I refinanced just under the wire (in February 2013) so my PMI will drop off in February 2018, but I'm stuck with it until then, even though I hit 78% LTV some time in late 2016 or early 2017.
posted by tckma at 2:01 PM on July 15, 2015
If you closed on your FHA loan before June 1, 2013, you are required to pay PMI for five years or until you have 78% LTV, whichever comes later.
If you closed on your FHA loan after June 1, 2013, you are required to pay PMI for eleven years or until you have 78% LTV, whichever comes later.
So, it sounds like you're stuck with PMI for 11 years unless you re-fi to a conventional loan.
I refinanced just under the wire (in February 2013) so my PMI will drop off in February 2018, but I'm stuck with it until then, even though I hit 78% LTV some time in late 2016 or early 2017.
posted by tckma at 2:01 PM on July 15, 2015
LTV is calculated on the original assessment value of the home used in the mortgage. In my case, that is the purchase price in May 2011, as that is when I bought the house, it appraised for the purchase price, and I refinanced the original FHA loan with another FHA loan which means I didn't have to do a new appraisal.
So whichever appraisal was used in your current loan -- when you have 78% of THAT left to pay on your loan.
posted by tckma at 2:02 PM on July 15, 2015
So whichever appraisal was used in your current loan -- when you have 78% of THAT left to pay on your loan.
posted by tckma at 2:02 PM on July 15, 2015
Response by poster: Hmm... I did contact my loan officer and he confirmed that PMI stays with the mortgage throughout the life of the FHA loan due to the 2013 changes.
posted by JimBJ9 at 3:45 PM on July 15, 2015
posted by JimBJ9 at 3:45 PM on July 15, 2015
This thread is closed to new comments.
- Your lender is legally obligated to lift PMI once your Loan to Value reaches 78%
- You may have it lifted earlier by sending a written request once LTV hits 80%
- FHA loans always calculate LTV based on the original sale price of the home, not on its current value.
- Some but not all FHA loans additionally stipulate that PMI can't be removed during the first five years of the loan regardless of remaining principal (that's the 60 payments rule you mentioned.)
The simplest thing to do to find out the particulars of your case may be to just call your current lender and ask them.
posted by contraption at 12:14 PM on July 15, 2015 [2 favorites]