When does PMI stop on FHA, USDA, and Conventional Loans?
Can PMI stop on my loan once I am under 80%? Not on many loans!
So when does PMI stop on my loan? We hear quite often the misunderstandings of PMI or annual fees from borrowers, loan officers, realtors, and attorneys on mortgage types such as the popular statement of “all PMI stops at 80%”. All loan officers should know these differences but realtor and attorneys should be careful with this all encompassing quote because it can lead to an upset borrower once this if found out. Each type of mortgage loan treats PMI or annual fees differently so check out the differences below:
USDA’s form of PMI continue for the life of the loan
USDA has an annual fee which is similar to PMI. The annual fee is recalculated each year based on the new balance of the mortgage. The annual fee is currently only .35 which began October 1, 2016. The annual fee percentage on USDA loans stay for the entire 30 year term but because it is based on the annual mortgage balance, the dollar amount decreases each year.
How to calculate monthly PMI for USDA loans: Loan amount x 1.0101% (USDA funding fee) x .0035 / 12 = monthly fee to include in the monthly mortgage payment. Make it easy on yourself and just use our USDA payment calculator which is very handy here
FHA PMI often continues for the life of the loan, but depends!
FHA has an annual fee which the percentage varies depending on the LTV and the loan term. The monthly amount of PMI is recalculated each year based on the new balance of the mortgage and the PMI percentage.
The length of time that FHA PMI stays on the loan varies depending on the loan term and LTV as shown below:
- Loans at 90% LTV or more will pay the annual PMI for the complete term
- Loans at less than 90% LTV will pay the annual PMI for 11 years
Loan terms greater than 15 years < $625,500: effective 1/26/15
- > 95% LTV =.85 PMI
- -< 95% LTV =.80 PMI
Loan terms 15 years or less < $625,500:
- -< 90% LTV =.45 PMI
- > 90% LTV =.70 PMI
VA home loans do not have monthly PMI
VA loans do not have monthly PMI on any of the terms so you don’t have to worry about when it continues
Fannie Mae or Freddie Mac conventional loans have PMI when the LTV is greater than 80% with either primary or second homes (PMI companies will not insure investment properties so their max LTV is 80% as of this date). To cancel PMI on a conventional loan, the following need to be met:
- Once balance is paid to under 80% of the original price, the borrower may request that PMI be cancelled, if the procedures are followed which are spelled out below **
- Once balance is paid to under 78% of the original price, the lender must cancel the PMI if the account has a “good payment history”
“Good payment history” means no payments 60 or more days past due within 2 years and no payments 30 or more days past due within 1 year of the later of the cancellation date or the date you submit a request for cancellation.
** PMI would be cancelled on a conventional mortgage if the following conditions are satisfied:
- You submit a written request for cancellation
- You have a “good payment history”
- You are current on the payments required by your loan and
- if requested and at the borrower’s expense, evidence satisfactory to the note holder that the value of the property has not declined below it’s original value (value at the time of the mortgage initiation), and that there are no subordinate liens on the property
Keep in mind that each mortgage company has a little different procedures so this is not a guarantee but for the most part, these are correct. Also, on second homes the PMI may not automatically cancel like a primary residence. Check with the individual lender.
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Author: Russell Smith
Team Move OVM Financial loan officer success is Russell’s primary focus. He provides the tools and techniques he used as a top producing loan officer. Additionally he offers the Team Move OVM Financial Agent Training Program. Sharing is so important to Russell so he works diligently to be a resource to loan originators and Realtors.