How to Remove PMI on an FHA Loan
To remove PMI (private mortgage insurance) on an FHA loan, one must have paid off at least 20% of the equity on their home. To pay off 20% of the equity means that the balance of the loan needs to be at most 80% of the value of the home. The value in this calculation can be based either on the value of the home at the time it was purchased or the appraised value of the home at the time the request to cancel the insurance is made. If the borrower has paid off 20% of the equity of their home, the lender has the option to cancel the insurance or to keep it, but once the borrower has paid off 22% of their loan, then the lender must cancel the PMI. To qualify for a cancellation of insurance, the borrower must have a good payment history, and they must have no outstanding payments. Also, the borrower must not have used the home as collateral for any other active loans.
It is important not to confuse PMIs and MIPs (mortgage insurance premiums). Unlike PMIs which are private and have the option to opt out, MIPs are provided by the FHA and cannot be canceled (that is if the loan was taken out after June 2013). Borrowers often choose to get MIPs because they are less costly. One option for borrowers the MIPs is refinancing. If you have paid about 20% equity, it is likely that you will be able to refinance an FHA loan with an MIP by getting a conventional loan without insurance. If the loan was taken out before June 2013 then same cancellation rules apply for MIPs as the do for PMIs.