When you obtain a conventional loan, PMI or Private Mortgage Insurance is required if you put less than 20% down on your new home.
PMI protects the lenders if the buyer defaults on the loan; and it is usually added to the monthly mortgage payment.
With true Private Mortgage Insurance, you can request that it be removed when you have 20% equity in your home OR when the loan is paid down to 80% of the original appraised value.
For example, if the original appraised value of your home was $300,000 you would have to pay $60,000 towards the principal to have the PMI removed.
Generally however, they will not remove it less than 1 year.
Another option to remove PMI, is to refinance.
If you obtain an FHA loan, then you are required to pay MIP or Mortgage Insurance Premium, if you put less than 20% down on your new home (citation).
In fact, with a FHA loan, you can put as little as 3.5% down on a new home.
Note: There are new rules concerning FHA 15 year loans and your Mortgage Insurance Premium.
FHA mortgage insurance might be permanent if you received your loan on or after June 3rd, 2013 (citation)
If the loan case number was pulled before June 3, 2013 the MIP requirement is for a minimum of 5 years, or when the loan balance is paid down to 78% of appraised value at the time the loan was funded.
After June 3, 2013 the MIP requirement is an eleven year minimum (replacing the 5 year rule); if you put more than 10% down or obtained a 15-year term loan.
For loans where only the minimum downpayment was paid (3.5%) and the term of the loan exceeds 15 years, MIP will be required for the life of the loan.
To find out when you are eligible to remove the FHA MIP contact me today.