FHA & Refinancing

OK, we are thinking about finally biting the bullet and refinancing our primary residence. Bank is telling us that we have to have PMI with an FHA loan, even though the LTV is 75-76%. Rate we are currently being offered is 5.5%. I’m hearing rates as low as 4.75%. Also, the banker is telling us we can’t buy the rate down.

I thought that if the house was at least at 80% LTV, you didn’t need PMI; has this changed?

FICO is 701
Trans. is 646
Beacon is 644

Are we getting hosed on this offer? Or am I just no clear on what’s out there? Any help is appreciated…

You may not need a fha loan. A conventional loan under 80% will not have pmi but fha will. You should probably call another professional right away.

Ben, thanks for the response…

I checked on HUD’s website, and it says PMI can be canceled at the request of the homeowner once it reaches 80%, and it also says that the bank must automatically cancel it if it reaches 78%…

Why then would a refinanced loan, at 75-76% LTV be required to have PMI for an FHA?

What am I missing here?..

P.S. - With rates being low, can you still buy the rate down?


The two reasons that the broker you are using is suggesting FHA are because of your credit score and pricing. With your mid-FICO being 646 it will cost you more to close your loan conventionally due to the risk-based pricing hits from Fannie/Freddie.

As for the FHA loan you will be hit with a 1.5% upfront MIP hit at closing PLUS you will have the MI on your loan for at least 5 years no matter what your LTV is. So keep that in mind. The only way out of the monthly MIP is to go with a 15 year FHA loan. The loan will still have the 1.5% upfront MIP but no monthly MI. I work for the #1 FHA/VA originator in the country and I am VERY familiar with FHA loans.

What I would suggest is to get a good faith estimate from whichever broker/banker you choose to go with and compare the two loans. Just from the information you provided it looks as if the conventional loan would be the way to go. I say this for the simple reason that with an interest rate of 5.5% (which is VERY high in todays lending enviroment. I am selling my customers 4.875%-5%) PLUS the MI of .5% annually gives you a net interest rate of 6% for at least five years PLUS the 1.5% upfront at closing. I would guess that the reason your broker is pushing you towards FHA is because the yields are better and he/she will make more money.


I’m currently refi-ing my FHA loan using their Streamline refi. I’ve only had my house for 6 months but have done significant remodeling in that time period and my mortgage guy is saying he might be able to drop the PMI if the appraisal comes in strong enough, which is contrary to what you said about the PMI staying on for 5 years. Is my guy confused or what?


Yes your guy is confused. The only way to get out from under the PMI is if you are under 80% AND you are doing a 15 year loan. Otherwise you will be forced to continue the PMI.