How Long is PMI Required on FHA Loan?
When it comes to purchasing a home, the Federal Housing Administration (FHA) loans offer a great option for borrowers who may not qualify for conventional mortgages. However, one aspect that often confuses borrowers is the requirement for Private Mortgage Insurance (PMI) on FHA loans. In this article, we will discuss how long PMI is required on an FHA loan and the factors that can affect its duration.
Understanding PMI on FHA Loans
PMI is a type of insurance that protects the lender in case the borrower defaults on the loan. It is typically required for borrowers who make a down payment of less than 20% of the home’s purchase price. In the case of FHA loans, PMI is mandatory for all borrowers, regardless of the down payment amount.
Duration of PMI on FHA Loans
The duration of PMI on an FHA loan can vary depending on several factors. Generally, PMI is required for the life of the loan unless the borrower meets certain conditions to cancel it. Here are some key points to consider:
1. Automatic Termination: If the borrower’s loan-to-value (LTV) ratio drops to 78% or less, the FHA automatically cancels the PMI. This typically occurs after five years of making timely mortgage payments, provided the LTV ratio is at or below 78%.
2. Manual Termination: Borrowers can request to cancel PMI earlier than the automatic termination date if they have made timely payments and their LTV ratio is at or below 80%. The lender may require proof of the LTV ratio, such as an appraisal or a credit report.
3. Refinancing: If the borrower refinances their FHA loan into a conventional mortgage, PMI can be canceled if the new loan has a LTV ratio of 80% or less.
4. Mortgage Insurance Premium (MIP) Cancellation: Borrowers can request the cancellation of MIP if they have made timely payments for at least five years and have an LTV ratio of 95% or less. This option is available for loans originated on or after June 3, 2013.
Conclusion
In conclusion, the duration of PMI on an FHA loan can vary depending on the borrower’s circumstances and the loan’s LTV ratio. While PMI is required for the life of the loan in most cases, borrowers can take steps to cancel it earlier if they meet certain conditions. Understanding the requirements and options for PMI cancellation can help borrowers save money and reduce their overall loan costs.
