How to Get Out of PMI on an FHA Loan
Unlock methods to eliminate the ongoing mortgage insurance burden associated with your FHA loan and reduce your monthly housing costs.
Homeownership can become more accessible through government-backed loan programs like those offered by the Federal Housing Administration (FHA). These FHA loans are designed to assist a broader range of borrowers in purchasing a home, often requiring lower down payments and having more flexible credit guidelines compared to conventional mortgages. To protect lenders from potential losses if a borrower defaults, FHA loans include a mandatory Mortgage Insurance Premium (MIP). This insurance is an additional cost that borrowers pay, separate from their principal and interest payments.
Understanding FHA Mortgage Insurance
FHA mortgage insurance consists of two distinct components: an Upfront Mortgage Insurance Premium (UFMIP) and an Annual Mortgage Insurance Premium (Annual MIP). The UFMIP is a one-time fee, currently 1.75% of the loan amount, which is typically paid at closing or financed into the loan balance. The Annual MIP is a recurring charge, paid monthly as part of your mortgage payment, and its rate can vary based on factors like the loan amount, term, and original loan-to-value (LTV) ratio. For most borrowers, the annual MIP rate in 2025 is around 0.55% of the total loan amount.
The duration for which you must pay Annual MIP depends on when your FHA loan was endorsed. For loans with FHA case numbers assigned on or after June 3, 2013, the rules are more stringent. If the original LTV was 90% or less (a down payment of 10% or more), the Annual MIP will cease after 11 years. If the original LTV was greater than 90% (a down payment of less than 10%), the Annual MIP is required for the entire life of the loan, regardless of equity built.
For FHA loans endorsed before June 3, 2013, different cancellation rules applied. The Annual MIP was typically cancelled once the loan’s unpaid principal balance reached 78% of the home’s original appraised value or sales price, whichever was lower. The majority of current FHA loans fall under the post-2013 regulations, making direct MIP cancellation more challenging.
Refinancing to a Conventional Loan
For many FHA borrowers, the most direct path to eliminate Mortgage Insurance Premium (MIP) is by refinancing into a conventional loan. Conventional loans are not government-insured and therefore do not carry FHA’s MIP. However, if you have less than 20% equity in your home when you refinance, you will likely be required to pay private mortgage insurance (PMI). PMI can typically be cancelled once you reach 20% equity in your home, either through payments or increased home value.
To qualify for a conventional refinance, lenders assess several financial factors. A strong credit score is important; while a minimum of 620 is often required, a score of 720 or higher can lead to more favorable interest rates. Lenders also evaluate your debt-to-income (DTI) ratio, which compares your total monthly debt payments to your gross monthly income. While some lenders may accept a DTI up to 45% or even 50% in certain cases, a lower ratio is generally preferred.
Sufficient home equity is another requirement. To avoid paying conventional PMI, you generally need at least 20% equity in your home, meaning your loan-to-value (LTV) ratio must be 80% or less. An appraisal will determine your home’s current market value, used to calculate your LTV. Lenders also require documentation to verify income and employment stability, such as recent pay stubs, W-2 forms from the past two years, and federal tax returns. You will also need to provide asset verification through bank statements and other financial account statements to demonstrate sufficient funds for closing costs and reserves.
The Refinancing Process
After assessing eligibility and gathering financial information, the refinancing process begins with submitting a loan application. The lender reviews your financial profile and the loan enters processing and underwriting. This phase involves a comprehensive assessment of your credit, assets, and debts, verifying all submitted information and evaluating the new loan’s risk.
The lender will typically order an independent appraisal of your home. A title search will also be conducted. If your application is approved, you will receive final loan disclosures, outlining the terms of the new mortgage, including the interest rate and any associated fees.
The final stage is closing, where you sign legal documents to finalize the new loan. The new conventional mortgage replaces your existing FHA loan. Refinancing involves various closing costs, typically ranging from 2% to 6% of the new loan amount. These costs can include origination fees, appraisal fees, title insurance, and attorney fees.
Other Options for Mortgage Insurance Removal
While refinancing to a conventional loan is often the most effective way to eliminate FHA Mortgage Insurance Premium (MIP), other options exist. Making additional principal payments can accelerate the amortization of your loan, potentially helping you reach the 11-year mark sooner for loans endorsed on or after June 3, 2013, with an original loan-to-value (LTV) of 90% or less.
For older FHA loans, extra principal payments could help you reach the 78% LTV threshold required for automatic MIP cancellation more quickly. For loans originated after June 3, 2013, with an original LTV greater than 90%, refinancing remains the primary method to remove the MIP obligation.