A Texas homeowner obtained an FHA loan three years ago with a 3.5% down payment. She now wants to refinance into a conventional loan to eliminate mortgage insurance. Which condition must be met for her to remove mortgage insurance through a conventional refinance?
Correct Answer
B) She must have at least 20% equity in the property (80% LTV or less) to avoid PMI on the new conventional loan
To avoid private mortgage insurance (PMI) on a conventional refinance, the borrower generally needs at least 20% equity (80% LTV or less). Since FHA MIP on loans with LTV above 90% lasts the life of the loan, refinancing into a conventional loan when sufficient equity exists is a common strategy to eliminate mortgage insurance.
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A VA loan is a mortgage guaranteed by the Department of Veterans Affairs available to eligible veterans, active-duty service members, and surviving spouses. It offers no down payment and no private mortgage insurance requirements.
An adjustable-rate mortgage (ARM) has an interest rate that changes periodically based on market conditions, typically after an initial fixed-rate period. The rate adjustment is tied to a financial index plus a margin.
Closing costs are the fees and expenses paid by the buyer and seller at the closing of a real estate transaction, beyond the purchase price. They typically range from 2-5% of the purchase price.
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