When does PMI stop on FHA, USDA, and Conventional Loans?
How Can I Get Rid of PMI? Does PMI stop on my loan once I am under 80%? Not on all 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 at closing or later. 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 stays for the entire 30 year term but because it is based on the annual mortgage balance. Therefore, 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.
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FHA PMI often continues for the life of the loan, but depends!
FHA has an annual fee but 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 over 90% LTV or more will pay the annual PMI for the complete term – On a purchase, this means less than 10% down
- Loans equal to or less than 90% LTV will pay the annual PMI for 11 years – Purchases over 10% down payment
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
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Even though FHA PMI currently continues for the life of the loan with less than 10% down payment, it is still a great loan for buyers. It offers low down payment, very competitive rates, and flexibility on many guidelines.
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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. Like all government loans, VA does have a funding fee which is an up-front fee that is customarily financed on top of the loan amount. Although VA does allow the Veteran or even the seller pay this fee! Additionally, qualified, disabled Veterans may be exempt from the VA funding fee.
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Know how the VA process works early to make it much easier!
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Conventional:
Lately, Fannie Mae loans have done a great job of loosening guidelines to help more buyers qualify for homeownership as mentioned in a recent article. Fannie Mae or Freddie Mac conventional loans have PMI when the LTV is greater than 80% with either primary, second homes, or investment properties. To cancel PMI on a conventional loan, the following typically needs to be met. Here are some of the details to have PMI stop as clarified by the Consumer Financial Protection Bureau in August 2015.
- Borrower Requested PMI Cancellation: Once balance is paid to under 80% of the original price, the borrower may request that PMI be cancelled on the cancellation date. The cancellation date means either the date when the principal balance is first scheduled to reach 80% of the original value (lower of purchase price or appraised value) for the property or date on which the principal balance reaches 80% of the original value based on actual payments. The borrower may make extra payments to move the cancellation date earlier. There are procedures to follow which are spelled out below **
- Automatic PMI Cancellation: Once balance is paid to under 78% of the original price, the lender must cancel the PMI on the termination date. The termination date is defined as the date which the principal balance is first scheduled to reach 78% of the original value for the property. Although before cancelling PMI, the loan must be current.
“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 could be cancelled on a conventional mortgage if the following conditions are satisfied:
- You submit a written request for cancellation
- Borrower must be current on the loan. For definition of being current, check the CFPB definition here
- 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 or investment properties, the PMI may not automatically cancel like a primary residence. Check with the individual lender.