Do you want to learn how to drop PMI from your FHA mortgage payment?
If you have an FHA home loan, part of your monthly mortgage payment goes towards private mortgage insurance (PMI). But don’t be tricked by the word “insurance.” This payment doesn’t insure you but rather protects your lender in the event you were to default on your mortgage. In this case, you can learn how to drop mortgage insurance from your loan payment via several ways.
Since FHA home loans only require a 3.5% down payment, they’re one of the most affordable ways to buy a home. But since PMI doesn’t benefit you, many people want to drop PMI from their monthly mortgage payment.
Believe it or not, there are 4 different ways for you to remove PMI from your monthly payment. Read on to learn more and find out if you qualify for one of the options.
The Homeowners Protection Act (HPA) requires mortgage lenders to remove PMI when lendees who haven’t missed payments and are in good standing reach a mortgage balance of 78% of the home’s purchase price. This milestone typically occurs when you’ve reached the halfway point of your loan term – for example, if you’re 15 years into a 30-year mortgage.
Once your mortgage balance has reached 80% of its original purchase price, you can ask your lender to remove PMI. The best way to get to this milestone is to make extra principal payments as often as you can. Even an extra $50 principal payment every month will help you achieve an 80% mortgage balance more quickly than if you were to only pay your required monthly mortgage payment.
With interest rates at historical lows, there’s never been a better time to refinance your mortgage than now. Since many FHA loan borrowers are first-time homebuyers, they find that in the years since they first purchased their home, their incomes have increased. If this sounds like you, then refinancing from an FHA loan to a conventional loan will automatically drop PMI. And since you’re used to sending the bank PMI every month, you may find that the slightly higher principal payment your making doesn’t change your monthly mortgage obligation much, if at all.
Last is how you can drop PMI without refinancing. Ask yourself, “Do you live in a hot real estate market where home prices have rapidly increased?” If so, your home’s appraised value may be significantly higher than what it was when you first purchased it.
Homeowners who’ve owned their homes for at least 5 years and have a new appraised value that gives them at least 20% equity can contact their lender, send them the new appraisal, and ask the lender to remove PMI.
If you’d like to drop PMI by refinancing your FHA home loan, we can help. Simply fill out our online form to be matched with a lender today.