4

I have been thinking to buy a house but I always thought that I would go for a conventional loan and put 20% down since my credit score is good and also I do not want to pay PMI for life.

Now, a couple of my friends bought theirs houses by putting only 3-4% down and went for FHA. When I asked them how do they feel about PMI, their response was that they only have to pay PMI for couple of months. This is very very confusing because I always thought that PMI is for life. If anyone could remove PMI penalty payments in matter of months then why wouldn't everyone go for buying a house?

So my question is:

  1. Is it possible to have to pay PMI for only couple of months?
  2. If so, how can I do that?
  3. Also,if that is the case what is the reason for anyone to not prefer FHA over conventional?
3

I disagree with the other answers. Until proven otherwise, I believe you are correct and your friends are mistaken. (And the fact they claim the insurance is gone after just a few months strengthens my belief. Had they said it drops off at 20% equity I'd be more inclined to wonder...) AFAIK you cannot remove the mortgage insurance on a modern FHA loan, even once you have more than 20% equity. (Maybe the confusion arises from PMI vs FHA Insurance even though they are basically the same thing?)

From the horse's mouth:

For mortgages with an FHA case number assignment date on or after June 3, 2013, the FHA insurance can be terminated by the servicer or holder if the mortgage is paid in full before the maturity date.

In other words, on new FHA loans, you have to pay off your mortgage (with cash or refi) to get rid of the insurance. But that statement seems obvious to me; can you imagine how awful it would be if you refinanced but still owed decades worth of insurance?!

Here's another reference:

The trick to getting rid of FHA mortgage insurance is to get rid of your FHA loan.

Here's a reference which suggests the length of time you pay FHA insurance for is 11 years for loans with more than 10% equity, or the entire life of the loan for those with less. In the case of your friends with only 3-4% down, they would fall into the latter category of insurance "for life" (of the loan).

0

PMI can be removed, with the bank's permission, when your equity becomes high enough to make it a confirming loan -- typically 20% or more of the value.

  • 1
    See portal.hud.gov/hudportal/HUD?src=/program_offices/housing/comp/… FHA loans may not allow cancellation of PMI until paid in full. In effect, it takes a refi to get rid of it. – JoeTaxpayer Jan 3 '17 at 1:32
  • That;s exactly what the confusion is. Most sources I refer to say that FHA PMI can not be removed. Then how come these people have their PMI removed? – Lost Jan 3 '17 at 5:19
  • 2
    @CoffeeBean PMI on conventional loans can be removed after you go over 20% of equity. Most loans will have a minimum time-span before they will re-assess the equity, typically in the span of a couple of years, not months. Not all sub-20%-down loans are FHA loans. – BobbyScon Jan 3 '17 at 15:26
  • 1
    I'm pretty sure this answer is incorrect- OP is specifically asking about an FHA loan. – TTT Jan 3 '17 at 20:36
0

You are sort of correct in your belief. Using this page as a reference there are two portions of an FHA loan. The upfront free 1.75% and the ongoing PMI. The ongoing PMI can be removed from either an FHA or conventional loan. But no matter what you will have to pay the 1.75% upfront fee of an FHA.

As such you may be better off attempting to qualify for a conventional loan considering that you have good credit.

While I do not have any experience with it, I imagine removing the PMI might be a bit of a pain. Banks tend to resist the denial of income.

  • 1
    What makes you think that PMI can be removed from an FHA loan? The page you referenced doesn't seem to say that. – TTT Jan 3 '17 at 20:11

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.