If you are considering purchasing a home, you may want to look into an FHA (Federal Housing Administration) loan. FHA loans offer many benefits, such as low down payment requirements and flexible credit score guidelines. However, one potential drawback is having private mortgage insurance (PMI). PMI is mandatory for all FHA loans and can add hundreds of dollars to your monthly mortgage payment. This can be a huge burden for you especially if you are on a tight budget. If you find yourself in this spot, don’t worry! Fortunately, there are ways to drop and remove PMI on an FHA loan. In this article, we have put together a guide on how to get rid of PMI on an FHA loan. Here’s what you need to know:
Understanding Private Mortgage Insurance on an FHA Loan
First things first, it is important for you to understand what PMI is and why is it required for FHA loans. PMI is a form of protection for lenders if a borrower defaults on their loan. With an FHA loan, PMI is required for the life of the loan, unless you take steps to remove it. The amount of PMI you pay depends on the size of your down payment and the total loan amount. For example, if you put down less than 10% on an FHA loan, you’ll pay PMI for the life of the loan.
Dropping Private Mortgage Insurance on an FHA Loan
There are a few ways to drop PMI on an FHA loan. The best option is to make a larger down payment. If you put down at least 10% on an FHA loan, you’ll only have to pay PMI for 11 years. If you put down 22% or more, PMI will be automatically removed. Another option is to refinance your FHA loan into a conventional loan. Avoid PMI altogether if you put down at least 20%. However, bear in mind that refinancing comes with its own costs and fees. Always do your research and compare the costs and benefits before making a decision.
Removing Private Mortgage Insurance on an FHA Loan
If you cannot drop PMI on an FHA loan, you can still take some steps to remove it. Once you have paid off at least 20% of your loan, you can request your lender remove PMI. But you may need to meet certain criteria, such as making on-time payments and having no late payments in the past year. Your lender may also require an appraisal to determine the current value of your home.
Private mortgage insurance can add a significant amount to your monthly mortgage payment, so it’s important to understand your options for dropping and removing it on an FHA loan. By making a larger down payment, refinancing into a conventional loan, or paying off a portion of your loan, you can potentially save hundreds of dollars each month. Again, it’s best to do your research or consult with a professional before you make any informed decision. Not sure where to start? You may contact us at Mann Mortgage and we’ll be glad to help you out.