PMI for Life of Loan or till 20% Equity?

[Gerrard Allam]

Hello BP Community, 

So I have a question and thought I'd take it to the larger community. I have been told and have heard conflicting information about Mortgage Insurance when it comes to FHA loans. I was under the impression that you must pay PMI if you have a FHA loan less with less that 20% down, and that you must pay this PMI until you reach 20% equity. A few people (agent, friends, etc) have said that is in fact not true and you must pay PMI for the Life of the Loan regardless of your equity in the property . But speaking to another agent they said that my initial assumption was correct . 

So which is it, do you need to pay PMI for the life of a FHA Loan or does it go away after you reach 20% equity in the property?

Thanks in advance,

G

[Ashley Lamoreaux]

Hi Gerrard,

FHA unfortunately does require you to pay the monthly MI for the life of the loan. FHA has two types of MI involved with every loan: monthly, and the upfront mortgage insurance premium (MIP), that is paid once at the time of Closing or financed into the total loan amount. The only way to remove monthly MI on an FHA loan is to refinance out of FHA.

Conventional, the monthly MI automatically falls off at 78% equity based on the appraised value at the time of Closing, however, you can request it to come off at 80%. I usually tell my clients to keep their amortization table from their Closing documents handy to know when they hit 80% to request removal so they don't pay the extra waiting for the automatic renewal. The most common misconception with MI removal, is that people see their value went up, so they think they are now eligible for removal, but it is actually based on the value at time of Closing. Only way around that, is to speak with the Servicer about getting an appraisal done for possible removal.

In your case however, since it is FHA, the only way to remove it would be to refinance out of FHA into Conventional or some other loan program type such as Non-QM.

Hope this helps!

-Ashley