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Private Mortgage Insurance: FHA MIP never goes away
If you’re paying Private Mortgage Insurance, you already know… it’s AWFUL. It can add HUNDREDS of dollars a month toward your mortgage payments. Obviously, you want to get this thing off your monthly payment as soon as humanly possible. Thankfully, there’re several paths to removing that PMI from your payment. But as a spoiler alert, you might not be able to remove this thing.
I’ll get to that…
What is Private Mortgage insurance?
PMI is a type of mortgage insurance that protects the lender in case a borrower defaults on their mortgage. If your down payment is less than 20 percent of the home value, then you’re usually required to get private mortgage insurance. The added annual cost is typically about 0.3 percent to 1.5 percent of your mortgage. Evened out, it typically means you can expect to pay between $30 and $70 in PMI for every $100,000 of loan principal. What you ACTUALLY pay just depends on your credit score, the amount of your down payment and whether this is an FHA loan or a conventional loan.
Good news is that your PMI is usually recalculated each year based on the current size of your loan, so the premium could perhaps decrease as you pay down the loan.
The Homeowners Protection Act (PMI cancellation act)
Alright so before we get to the confusing part here…. Let’s acknowledge what the other blogs, videos and your uncle steve are reiterating to you:
They MIGHT BE CORRECT. You kind of have the RIGHT to remove PMI from your home loan after certain qualifications have been met. The name of that federal legislation is called the Homeowners Protection Act. It’s also been referred to as the PMI Cancellation Act. A lot of syllables here but basically folks before 1998 were having trouble getting lenders to release the PMI policy. So federal legislation was passed to force them to terminate that PMI at specific home equity milestones.
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How to Cancel PMI for FHA loans BEFORE June 3rd, 2013:
If you have a conventional loan, or if your FHA loan was opened prior to June 3, 2013, this is your lucky day. If you’ve made your payments on time and your loan balance is below 78% of the last FHA appraised value, then your lender HAS TO cancel your mortgage insurance today… BY LAW.
FHA Mortgage Insurance Protection (MIP)
The reason this is confusing though is because FHA loans on or AFTER June 3, 2013 became non-cancellable. That’s right. These FHA loans skip over that federal legislation and you are now permanently married to your Private Mortgage Insurance as long as it’s in place. That’s because these government-backed FHA loans (and we’ve heard for VA loans) are operating under a different set of rules. These PMI amounts aren’t only HIGHER than conventional mortgages, they’re also stuck on the loan through maturity.
4 ways to get rid of FHA MIP/PMI:
Well, I’ve purchased many properties subject-to the existing mortgage and I’m currently appealing these PMI payments, but my hopes aren’t up.
So if that doesn’t work, the only real remedy you’ve got here is just to refinance into a conventional loan. Now this might actually be a great idea anyway — especially if mortgage rates have dropped since your original loan.
With today’s rising home values, homeowners might be surprised how much equity they have. With a refinance, you can use your home’s current appraised value (from a new appraisal) rather than the original purchase price.
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Now, even if you don’t have enough equity to refinance without PMI, you can still probably convert yourself from a FHA PMI into a conventional PMI. What that’ll do for you is basically just ensure that you’re going to be protected under the Homeowners Protection Act. You’ll pay a lower PMI payment and then additionally be enabled to remove that payment after you meet the necessary requirements.
So if you’ve got conventional PMI, then here’s typically the requirements to get it removed from your monthly escrow payment:
- Be current on your mortgage payments, with a good payment history.
- Meet other lender requirements, such as showing there are no other liens on the home.
- If required, you might need to get a home appraisal. If your home value has declined, you might not be able to cancel the PMI.
- Make the PMI cancellation request to your lender in writing.
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