How to eliminate PMI

Question

Hello there,

My question is, how can I eliminate my PMI? I know the simple answer is throw in a bunch of equity.

However, let’s say hypothetically (nudge nudge) I have a property I purchased at $250k with an FHA loan (3.5% down of course), and I believe through passive and forced appreciation, the property is now worth say $300k (nudge nudge). Basically, $50k in equity based on appreciation.

Now I have not had any appraisals nor spoken to any banks about this yet. But, is there any way I can eliminate you PMI to lower my monthly payments and increase my cash flow if I believe I now have the equity to satisfy the bank? Or did I just describe refinancing?

IF the answer is yes I need to refinance, what are some experiences/things I should do or expect? I have never refinanced before and it seems like a large hurdle

Best,

Michael

Nick Belsky · Answer

@Wayne Brooks is 100% correct. You will be stuck with PMI for the life of an FHA loan.  You will have to refi out at 80% LTV or lower to get rid of it.

So... let's do some math.

If you PURCHASED for $250k with 3.5% down, that means your purchase amount was around $241,500.  Add on your upfront PMI payment and such, your loan amount may be around $245k or so.  Let's assume your average Principal payment applied is around $400 and you've had the property to about 2 years, so your rate may have been 3-3.5%...

Your current evaluation at $300,000

Your current principal at $235,400

Your current LTV is about 78.4%

HHmmm.... Looks like you are right about where you are trying to get to!  If you can refi into a conventional loan, you may improve your rate a bit as well.  However, don't forget about your refi costs.  Some like to roll the refi closing costs into their new loan, that will change your LTV.  You do have the option to roll the max amount you can to keep your LTV at or below 80%, then pay cash for the rest.   No more PMI...

Greg Dorn · Answer

One last thing to add is that when you have very little equity in a property the FHA Mortgage Insurance Premium (MIP) is less expensive than Conventional loan's Private mortgage insurance (PMI). If you are close to 80 percent then doing a conventional loan refinance makes sense but you should be careful. Getting the PMI off a conventional loan happens when you request it because you beleive you have over 20% equity (but you will likely have to pay for an appraisal to show that and that will run you $500+ right now) or once you pay down the balance below 78% LTV with the numbers that were listed in the refinance loan. If you are going to rely on appraisal route you are also hoping the market stays where it is at which is always a risk.

I would say your best route is to do a rate and term refinance into a conventional loan. You will at least have the option of getting the mortgage insurance off which is better that what you currently have. Although you did do an FHA loan before which means that it will depend heavily on where your credit is at currently.

Andrew Postell · Answer

@Michael Salamone you have some good suggestions and just to bring a few of them together it might make sense to refinance into a Conventional type of loan even if you are NOT avoiding PMI.  The PMI on a conventional loan might be lower.....and as mentioned, it will go away here pretty shortly it seems.  I would encourage you to get with a lender and run numbers right away.  Rates have been slowly trickling upward in recent months so see if it makes sense to do now - even if you don't have 20% quite yet.  Hope that makes sense.

Caroline Gerardo · Answer

You can refinance to conventional at 90% loan to value and reduce your payment and when your loan to value later gets to 79% you can request the drop the MI. You sound as if you care close to 80%

Eddie Torres · Answer

@Wayne Brooks Good to know. Thanks.

Wayne Brooks · Answer

@Eddie Torres @Michael Salamone With fha, 3.5% down, MIP is for the life of the loan….no removing it. Yes, you’d have to refinance and have at least 20% equity (maximum 80% LTV) to avoid PMI.

Eddie Torres · Answer

@Michael Salamone you generally need to be at 75-80% LTV ratio. If you think you meet that criteria, contact lender to initiate the process. They will require an appraisal and you will also have to pay for it.