How to Get Rid of PMI & FHA Loans

A major disadvantage of FHA loans is the requirement for monthly private mortgage insurance (PMI) payments. Borrowers who put less than 20 percent down at closing must pay PMI along with the regular monthly payments. This can run an extra $100 to $200 per month. To eliminate PMI, you must reach 78 percent loan-to-value. You can achieve this through a combination of principal reductions and home value appreciation. Once you feel you have the value, you will formally request cancellation of your PMI.

Step 1

Obtain a current appraisal of your property. In 2011, a residential appraisal runs between $200 and $500. Multiply the market value by 0.78. This is the amount you need to reduce the principal balance to. For example, a home with a $100,000 value must be paid down to at least $78,000 to eliminate PMI.

Step 2

Reduce the principal balance as much as you can. Most people will not be able to afford one big reduction. You can speed up the natural amortization by paying extra wherever possible.

Step 3

Contact your bank and request that your PMI be canceled once you reach 78 percent loan-to-value. If some time has passed since the appraisal, the bank may require a new appraisal at your expense.

Step 4

Refinance your loan with another lender to switch from an FHA loan to a conventional mortgage. This will be necessary to eliminate PMI if your loan was booked prior to 2001. These FHA loans require PMI for the life of the loan.

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