Introduction
Removing Private Mortgage Insurance (PMI) from an FHA mortgage can save homeowners a significant amount of money. PMI is typically required for borrowers who make a down payment of less than 20% on their home purchase. However, once certain conditions are met, it is possible to eliminate PMI from an FHA mortgage. In this article, we will explore the steps and requirements for removing PMI from an FHA mortgage.
Understanding PMI on FHA Mortgages
What is PMI?: Private Mortgage Insurance (PMI) is a type of insurance that protects lenders in case a borrower defaults on their mortgage. With FHA mortgages, PMI is known as Mortgage Insurance Premium (MIP).
When is PMI required?: PMI is typically required for FHA mortgages when the borrower makes a down payment of less than 20% of the home’s purchase price. It is an additional cost that is added to the monthly mortgage payment.
Removing PMI from an FHA Mortgage
1. Build sufficient equity: The first step to removing PMI from an FHA mortgage is to build sufficient equity in the home. According to FHA guidelines, borrowers must have at least 20% equity in their home before they can request the removal of PMI.
2. Reach the required loan-to-value ratio: The loan-to-value (LTV) ratio is the percentage of the home’s value that is mortgaged. To remove PMI, borrowers must reach an LTV ratio of 78% or less. This means that the mortgage balance should be 78% or less of the home’s appraised value.
3. Request PMI removal: Once the borrower has built sufficient equity and reached the required LTV ratio, they can request the removal of PMI from their FHA mortgage. This can be done by contacting the mortgage servicer and submitting a written request.
4. Provide necessary documentation: The mortgage servicer may require documentation to verify the borrower’s eligibility for PMI removal. This may include proof of timely mortgage payments, evidence of increased home value, and any other documents requested by the servicer.
5. Appraisal may be required: In some cases, the mortgage servicer may require an appraisal to determine the current value of the home. This appraisal is typically paid for by the borrower and can help establish the home’s value in relation to the mortgage balance.
Conclusion
Removing PMI from an FHA mortgage can be a beneficial financial move for homeowners. By building sufficient equity and reaching the required loan-to-value ratio, borrowers can request the removal of PMI from their mortgage. It is important to follow the guidelines set by the FHA and provide any necessary documentation to support the request. Removing PMI can result in significant savings over the life of the mortgage.
References
– FHA: www.fha.com
– Consumer Financial Protection Bureau: www.consumerfinance.gov
– U.S. Department of Housing and Urban Development: www.hud.gov
