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FHA Loan Reader Question: Rules on PMI

A reader asks, “My loan is 635,000 and my home is appraised at 795,000.

26 Responses to FHA Loan Reader Question: Rules on PMI

  1. David says:

    To whom it may concern,

    I have a very unique situation.
    I want to buy a home for my family using FHA financing. My credit, income, assets, and work history meet the FHA requirements. My wife’s credit is low, 650, due to a Ch.13 bankruptcy that she alone filed back in December 2010 when we were residents of a NON Community state, Indiana. I’ve been paying on all her debts ON TIME, including the trustee repayment, for over a year now. According to FHA, there’s a one year wait after filing a ch.13 before you can apply for an FHA loan.
    My wife is a home maker and a self employed landlord, and I’m the only employed income source aside from the rental income She receives from the 2 homes that are in her name alone. We now live in CA, a community state, so when I apply for a loan, they look at her credit and debts.
    What are the FHA guidelines for borrowers whose spouse are self employed, have a CH.13 BK, own 2 rentals with 30yr fixed conventional financing, NON-FHA mortgages? Will they allow her on the loan so they can use her rental income to offset the debt on the properties? My income will not be enough if I have to cover a new FHA mortgage, her two rental mortgages, and the trustee repayment.
    Thanks in advance for your response, as we look forward to buying a home soon.


    • Joe Wallace says:

      Hi David,

      The Chapter 13 issue will be your main concern–FHA loan rules do permit a new loan application after one year of satisfactory fulfillment of the Chapter 13, but the court’s permission is needed. The FHA allowing this does not automatically translate to a lender’s approval–you’ll need to find a lender willing to work with you and provide permission in writing from the court. For self-employed borrowers, two years of tax returns and other documentation of your income and expenses is required including balance sheets, etc.

  2. Jeff Lindley says:

    What does PMI pay when barrower defaults on loan.

  3. Janice says:

    If you are just applying for a fha loan, and the value of the house -say $100,000 and you only ask to borrow $70,000′ do you have to take the pmi insurance? Thanks.

    • Joe Wallace says:

      Mortgage insurance is required for FHA home loans with down payments less than 20%.

      • Janice says:

        I only saw something about if more than 78% of the loan value, you had to have it. Where does it say that it is mandatory if less than 20% down payment? (I’d like to read it again). Thanks.

  4. Barbara says:

    Can I pay off cost of PMI upfront (as part of closing cost) so that the cost is not rolled in to mortgage (in an effort to avoid additional cost of financing the cost of PMI over the course of several years – until reach 20% equity threshold)?

    • Joe Wallace says:

      Hi Barbara, thanks for your question. Are you asking about Up Front MIP or the monthly MIP payments?

      • Barbara says:

        Hi Joe,

        I talking about the monthly PMI payments.

        • Joe Wallace says:

          Hi Barbara–you may wish to ask your lender about setting up an escrow account that would in effect allow you to deposit the money for MIP up front, to be deducted as the MIP comes due.

  5. Janice says:

    Is the PMI based on the loan amount, or on the appraisal amount?

  6. Dolores says:

    We purchased our first home using an FHA loan – 5% down.
    We have outgrown our home due to an expanded family and we are looking to purchase another home that is bigger – is it possible to qualify for another FHA loan – we have at most 10% to put down towards a new home.
    Our plan would be to rent out this current home we have as it is in a good rental area.
    Any advice on how we can achieve this?


  7. Frank says:


    Is the 20% down payment rule for not paying the PMI, in relation to whatever the borrowed loan amount?

  8. Ashley says:

    We heard that in order to get rid of the monthly PMI payment, you must have 20% equity AND 5 years of paying off the loan. Your above article states that it’s only the equity that matters and makes no mention of the amount of time you own the loan.

    Is it only the equity that matters and not the time?

  9. robert altman says:

    I bought a house in 09 for 557000 with a FHA loan and put down 96000 down in cash … why am i paying PMI?

  10. Dana says:

    Hi, I am in the process of purchasing a home using an FHA loan. My expected closing date is March 31, 2013. I see that there will be some new guidelines regarding PMI effective this year. Would I be required to pay PMI until I have 20% equity and have paid PMI for 5 years or would I be required to pay PMI for the life of the loan?

    • Joe Wallace says:

      Check the terms of your loan agreement or ask the lender if your loan is affected by the new PMI rules. If your FHA case number is assigned on or before April, the previous terms and conditions for PMI should apply. New PMI rules take effect in April and June 2013.

  11. KRussell says:

    I bought a foreclosure in Sept 2012 for $215,000. at the time, due to not having many comparable properties (it’s a new subdivision), the appraisal came in at $225,000. We did a FHA, 3.5% down loan 30-yr fixed at 3.25% I pay a bit over $200/mo in MIP. Based on current sales prices, and even county property assessment records, I am certain that if I were to have an appraisal done today, the home value would be in the $275,000 to $290,000 range. I know MIP must be paid for 60 months. I believe I have more than 20% equity in the home, but it seems that the loan-to-value regulations use the lower of sales price ($215K) or market value (say $275K). Is there any way to adjust the LTV to account for buying a foreclosed/auction/underpriced property? I feel like I’ll be stuck paying MIP well beyond the 5-yr mark because I can’t submit a new appraisal to show that I have the 78% equity because they’ll just use the sale price. Meanwhile, the county won’t lower my tax assessment because their appraisal came in so significantly higher than my purchase price. so I get higher taxes AND throw away money at MIP. is there any way at all to rid myself of MIP at the 5-yr mark???

    • Staff Writer says:

      You should definitely discuss your needs with your lender, but that said, the FHA loan rulebook states: “FHA calculates LTV as a percentage by dividing the loan amount
      (prior to the financing of any UFMIP) by the lesser of the purchase price (if applicable) or the appraised value of the home.” That calculation is made at the time of the loan and based on that reading it seems logical to assume the FHA would not recalculate the LTV after the loan has closed.

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