PMI

[Nicole Lustica]

Hello. I have a question regarding PMI on an FHA loan. There is a home that was purchased for $180,000 with 3.5% down on an FHA loan in PA. The home was appraised for $30,000 more than the purchase price. Is it possible to get the PMI removed?

[Kevin Hunter]

@Nicole Lustica, I have not heard of many banks that will remove the PMI before the seasoning period. Years ago, an FHA loan had a five year seasoning period on the PMI. Now the banks keep the PMI in place for the life of the loan. You can always REFI into a conventional loan, but that requires you to have more equity.

At 180,000 and 3.5% down, your down payment should have been $6300, leaving you with a principal remaining of $173,700. If the property appraised for $210,000 as you stated, you now have 17.3% equity in the home, with 82.7% LTV. As long as this is your primary residence, you can refinance into a traditional 30 year loan with up to 90% LTV. Call some mortgage brokers and you will find one who will refinance it for you. This will allow you to get rid of the PMI.

If this is an investment property, most lenders will only lend up to 75% LTV, with some that will go as high as 80%. This means you need to pay an additional $5700 of the principal down, plus the closing costs.

For the investment property, if now becomes a math problem. What is you PMI payment per month and how long to you plan to keep the home. Assuming the PMI payment is somewhere around $250 per month, and assuming the closing costs would be somewhere around $2000, it will take you 30 months to recoup the additional out of pocket cost. If you plan to hold the property for at least 30 months, it will be worth your while to refinance the loan (based on my assumptions). Good luck!!!!