What to Concern Yourself When Buying a House with PMI

How long do I pay? How much do I pay? Can I even get rid of it?  When you buy a home with less than 20% down, you must pay for mortgage insurance (PMI). If you are not sure what mortgage insurance is all about, this article will help to make it clear.

Overview of Private Mortgage Insurance (PMI) 

To qualify for a mortgage loan that is backed by Fannie Mae or Freddie Mac, you must get PMI with less than 20% down. The PMI is paid monthly by the borrower. It protects the lender against a financial loss if you default. When people put down less than 20% on a home, it is statistically more likely they will default. PMI ensures the lender will get most of their money back if you stop paying.

PMI is required until you have 20% equity in the home. At that point, PMI can be cancelled by requesting it from your lender. But it must be cancelled by law once you have 22% equity.

PMI Costs

PMI usually costs you about .5% of the amount of the loan. Thus, if you buy a home for $300,000 and put down 10%, you will pay PMI on $270,000 per year, which amounts of $1350 per year, or $112 per month. This is a considerable additional monthly cost, in addition to loan principal, interest, insurance and taxes.

However, it is not necessarily a bad thing to pay PMI. If you are able to put down 5% on a home rather than 20%, this is a savings of tens of thousands of dollars. Some would say a small price to pay for that is to pay PMI each month. And once you have 20% equity, PMI can be cancelled. The only exception there is if you are not making mortgage payments on time. In that case, you will need to continue paying PMI until you have at least a year of timely payments.

FHA and MIP

Some home buyers get a loan that is backed by the Federal Housing Administration. These loans also require you to have mortgage insurance, but it is called MIP. Mortgage insurance on FHA loans works the same as PMI with conventional loans, but it is a bit more expensive each month. There also is an upfront mortgage insurance fee of 1.75% of the loan amount that can be wrapped into the loan.

A critical issue to know with FHA mortgage insurance is you cannot cancel it in most cases, as of 2018. The US government made MIP mandatory on all FHA-insured loans with less than 10% down in 2013. If you put down 10% or more, you can cancel it after 11 years.

So, once you have reached 20% equity, you are paying for mortgage insurance that you would not be paying for with a conventional loan. If you plan to stay in the home for years more, it is worth considering a refinance into a conventional loan. You will pay for closing costs, but you will be saving that monthly mortgage insurance payment every month for years.

Considerations on PMI

For most people, if you cannot put down 20% without causing major financial woes, it often makes sense to pay PMI. You are going to save yourself a lot of upfront money. Plus, you can stop paying rent years sooner by paying PMI. In many markets that are in strong demand, you will often pay much more in rent than the mortgage payment for the same home. Viewed in this light, paying PMI with your own home could be a wash or even a savings. Also, many people like the idea of owning their own home, even if they pay PMI.

Mortgage insurance premiums also usually help you during tax season. If you are paying PMI, your PMI payments are usually tax deductible. This can save you at least a few hundred dollars on your taxes. Don’t forget to verify your eligibility for a home loan with no PMI.

Final Thoughts

If you do buy a home with PMI, remember you can cancel it after you have gotten to 20% equity. You will need to send a written request to the lender to ask that it be removed. The lender will review your payment history and respond within a few weeks. If you have been paying on time for a year, they should remove PMI.

However, US law now requires the lender on a conventional loan to remove PMI automatically when you have 22% equity in the home, if you have been making your payments on time. This was done because some lenders were delaying the removal of PMI, probably to increase their financial cover if you were to default. But this is now illegal to do, so you should be able to get rid of PMI once you have at least 20% equity.

When to Petition Your Mortgage Servicer to Cancel Unnecessary PMI Payments

You have to make it happen, because they won’t.  Federal law requires many mortgage providers to remove PMI under some circumstances. Some lenders may also allow for PMI to be removed, according to their own standards. Standards for getting PMI removed from a mortgage have been established under the Homeowners Protection-Act. The law provides two major ways for you to get rid of PMI:

  • Request that PMI be cancelled
  • Automatic PMI cancellation

When you have a conventional loan, you have the right to ask your mortgage servicing company to cancel mortgage insurance when you have reached the point on your mortgage schedule where the balance falls to 80% of the home’s original value. The date should be provided to you when you first get the mortgage on a PMI disclosure form. If you are unable to locate the form, you can ask your mortgage servicer for a copy.

You can request PMI be cancelled at an earlier date if you made higher payments that have reduced your mortgage balance to 80% of the original value.

This also could occur if the home has appreciated significantly in value since you have bought it. If you want to cancel PMI because of home appreciation, you may need a new appraisal to show the lender that you have reached 20% equity in the home.

There are other criteria you must meet if you want to cancel PMI. First, you must ask the lender in writing. Second, you must have a solid payment history and be current. If you have not made payments on time in the past 12 months, it is unlikely the lender will allow you to cancel PMI. Also, the lender may require you to prove you do not have a second mortgage on the property. Last, the lender may ask you show a current appraisal that shows the value of the home has not dropped.

Even if you do not ever ask the lender to cancel PMI, it still must terminate mortgage insurance on the date that your loan balance falls to 78% of the home’s original value. For mortgage insurance to be cancelled on this date, you must be current on mortgage payments. PMI will not otherwise be cancelled until payments are up to date.

There is another way you can get rid of PMI. If you are current on mortgage payments, the lender must end PMI the month after you are 50% through the loan’s amortization schedule. For a 30-year mortgage, this would be at the 15-year point. This standard is more likely for people with an interest only period on the loan, a forbearance or a balloon payment. In this case, you still must be current on monthly payments.

Keep in mind that your loan servicer may have other PMI cancellation policies that could include provisions beyond what is in federal law. But the guidelines may not restrict the rights that federal law gives you. For instance, the act does not have requirements for how long the loan has to have been in effect before you can request cancellation of mortgage insurance.

What About FHA?

FHA financing is another matter. These loans are secured by the Federal Housing Administration. FHA mortgages written after June 2013 cannot generally have mortgage insurance cancelled. The federal government changed the rules in 2013 to shore up the reserve fund for FHA, so most FHA loan holders must pay mortgage insurance for their entire loan term.

One exception is a loan where at least 10% was put down for a down payment; these loans can have mortgage insurance cancelled after 11 years. If you have an FHA loan and have 20% equity, you may not be able to cancel mortgage insurance. The best option in this situation is to refinance into a conventional mortgage. This should be possible if you have a credit score in the 640 range.

Takeaways on PMI Cancellation

The bottom line on cancelling PMI is that the rules have been laid out very specifically in federal law so that mortgage companies cannot force you to pay PMI longer than necessary. The lender can legally decline to deny your request when you are at 20% equity. But, if you have made payments on time, the mortgage provider MUST under federal law automatically cancel PMI when you have reached 78% loan to value. Ask your mortgage company if they have any no-PMI mortgages that are priced competitively.

But before that, you will probably need to contact the mortgage provider in writing for them to consider removing PMI at 80% loan to value.

Of course, you can avoid PMI entirely if you put down at least 20% on your home. But this is challenging for many Americans, especially first-time buyers who lack equity.

 

References: https://www.consumerfinance.gov/ask-cfpb/when-can-i-remove-private-mortgage-insurance-pmi-from-my-loan-en-202/

Do You Have to Pay PMI in 2018?

Do you even know?  Find out how and why you can save your family tens of thousands of dollars for FREE

Private mortgage insurance (PMI) is used to help people to buy a home with less than a 20% down payment. Despite the fact that PMI allows millions of people to buy a home sooner than later, many consumers want to get rid of PMI if they can. This article details what PMI is and how you can secure a mortgage with no PMI in many cases.

If you want to get rid of your PMI payment each month, you have a few basic options worth mentioning up front:

  • Make a 20% down payment! Yes, we know this option is rather obvious, but we thought we would mention it. If you can put together the cash, it is a good idea to put down 20% or even more. You will get the very best interest rates and will have a lower monthly payment to boot.
  • If you are in the military or are a retired veteran, you can often qualify for a VA loan which never charges you mortgage insurance.

But if you cannot do either of these options, there are still some other choices. First, you may be able to get lender paid mortgage insurance or LPMI. This is similar to PMI but the lender pays the insurance for you. To pay for your mortgage insurance, most lenders will require you to have a mortgage rate hike of .75%. This may work for you, but you need to check with your lender to see if they offer it. Also, LPMI cannot be cancelled like regular PMI, so you will pay that higher rate for the life of the loan. Whether that works for you depends upon your financial goals.

Another option is to use piggyback financing. This type of structure requires a 10% down payment in most cases. In this loan, the buyer brings a down payment of 10% to the closing table. Instead of getting a 90% mortgage, the buyer takes two mortgages, one on top of the other. The most common scenario is an 80% first 10% second and a 10% down payment. This also may be called an 80/10/10. If you are buying a condo, a 75/15/10 piggyback loan is the most common.

How to Eliminate PMI After I Buy?

If you already have your home and are paying PMI, you probably want to get rid of it. Generally, your PMI cannot be cancelled until your loan balance drops to 80% or less of your home’s appraised value, or 80% of the home’s current value.

There are some restrictions for cancelling PMI though. You could be asked to show that you have paid your mortgage on time for at least one or two years. Lenders are always required to give you an update every year about your options to cancel PMI.

One of these updates must include a notice of the Homeowners Protection Act of 1998. This requires mortgage lenders to terminate PMI when you reach 78% LTV. This is based upon the purchase price OR the appraised value from the date of purchase/refinance, whichever is less.

You must be current on your mortgage when you get to 78% LTV to have PMI taken off. If you are not current, PMI will be eliminated on the first day of the first month that you are current.

The Homeowners Protection Act of 1998 also mandates that homeowners may ask to cancel PMI once they reach 80% LTV, based upon the original value of the home. But you do need to contact the lender in writing to do this; they will not contact you before you reach 78% LTV. So, it is wise to keep close track of when you reach 78% LTV to cancel PMI as soon as you can.

What PMI Costs

PMI costs vary depending upon your lender, credit score, down payment and other factors. Generally, the less money you put down, the more PMI will cost. This is because you are a higher risk to the lender. Generally PMI can cost anywhere from .30% to 1.15% of your loan balance per year. The rate will be influenced also by how long the loan is.

PMI costs are usually paid each month with 12 equal payments. However, your PMI costs can change from year to year.

Mortgage Insurance for FHA Loans

If you have an FHA mortgage, you also are probably paying for mortgage insurance, called a mortgage insurance premium or MIP. If your home is worth less than $625,500 and you put down less than 5%, you will pay approximately .80% of your loan balance each year in mortgage insurance premiums. You also have to pay an upfront mortgage insurance premium when you take out the loan; it can be wrapped into the mortgage.

Importantly, MIP cannot always be cancelled. If your loan was issued after June 2013 and you put down less than 10%, you cannot cancel MIP. Your only option is to refinance into a conventional mortgage once you have 20% equity in the property. If you put down 10% or more, you can cancel MIP after 11 years.

Why Is FHA Mortgage Insurance Forever?

FHA mortgage insurance, known as MIP (Mortgage Insurance Protection) is an insurance policy that protects the lender if you default on the mortgage. MIP allows the lender to issue mortgage loans that require small down payments and at very low interest rates. MIP reduces risk to the lender, and this allows the lender to issue mortgage to people who might not otherwise qualify for a loan.

The FHA mortgage holder pays for the MIP up front and as part of their monthly mortgage payment. After mid-2013, most FHA mortgage loans are required to pay MIP for as long as they hold their mortgage with FHA. By making people pay for mortgage insurance premium even after they have 20% equity, the Federal Housing Administration has been able to bolster its reserves to ensure it has enough money available in case people were to default en mass. But there are ways that you still can get rid of mortgage insurance. Below is more information about FHA mortgage insurance premium and how you may be able to cancel MIP. Ask about no PMI loan opportunities.

How Long Does MIP Last with FHA Mortgage Programs?

Loans from FHA are in two categories: those that have case numbers before June 3, 2013, and those that have case numbers after that date. Being able to cancel MIP or not depends upon the date the loan was issued and other factors. For FHA loans that were issued on or after June 3, 2013:

  • 20-30 year loan with less than 10% down: MIP is life of the loan
  • 20-30 year loan with more than 10% down: MIP can be cancelled after 11 years
  • 15 years or less loan with less than 10% down: MIP is life of the loan
  • 15 years or less with more than 10% down: MIP can be cancelled after 11 years

For loans that were issued before June 3, 2013:

  • 20-30 year loan with less than 10% down: 78% LTV, MIP can be cancelled
  • 20-30 year loan with 10-22% down: 78% LTV, MIP can be cancelled
  • 15 year loan with less than 10% down: MIP may be cancelled after five years
  • 15-year loan with 10-22% down: With 78% LTV, MIP can be cancelled

Most FHA lien holders have loans that were opened after June 2013, had less than 10% down and were for 30 years. In these cases, you cannot cancel MIP. But that is not the end of it. Once you have gotten to 80% or so LTV, that is, you have at least 20% equity, you can refinance out of an FHA loan into a conventional loan with no mortgage insurance.

The price of homes has gone up considerably in the last three years. A home that you put down only 3.5% or so in 2014 could have enough equity to allow you to refinance with no PMI.

Why People Choose FHA Loans and MIP

A major advantage of conventional mortgages is mortgage insurance is cancelled automatically when you reach 78% loan to value. As we have made clear above, this is not usually the case with FHA mortgage insurance. So why do so many people choose an FHA loan with MIP?

FHA loans are easier to qualify for. It is possible to have a 3.5% down payment with only a 580 FICO score. If you get a conventional loan, you may have to have at least a 640 FICO score and put more money down. It also is possible to get an FHA loan with only a 500 FICO score. FHA loans are popular with people who had serious financial problems in the past, such as a bankruptcy or foreclosure. But as long as you are on a stable financial footing in the last one or two years, you should be able in many cases to get an FHA loan. The FHA loan is one of the most popular loan products in America today for people with below average credit scores.

Also, FHA MIP is significantly cheaper than conventional PMI for people who have credit scores below 700. For example, FHA MIP costs $71 per $100,000 borrowed regardless of your credit score. But with a 680 FICO, conventional PMI costs $44 more per $100,000 financed. Thus, mortgage insurance is a better deal for people with lower credit scores on an FHA loan.

Refinancing Out of an FHA Program

Still, if you have 20% equity in the property, there is no reason you should pay MIP forever with an FHA mortgage. It is strongly recommended when you have 20% equity to refinance to a conventional mortgage. You should find a lender who specializes in these types of refinances.

Paying for MIP with an FHA loan is not a cheap thing, but it is often a good deal until you have 20% equity in the property. After you have that much equity, you are strongly advised to have your credit score at a point where you can refinance into a conventional loan. There is no reason to pay for MIP for the entire life of the loan.

How Mortgage Insurance Companies Are Getting Rich

Mortgage Insurance Companies Are Getting Rich with Default Rates at All-Time Lows.  The good times are rolling for many American homeowners in 2017 and 2018. Only 5% of US homeowners were behind on their mortgage payments by 30 or more days in 2017, according to an analysis by the prominent data company Corelogic. That is the lowest mortgage delinquency rate since 2007. Also, the foreclosure inventory rate in February 2017 was .8% compared with 1.1% in February 2016. The serious delinquency rate of 90 days or more past due was 2.2% in February 2017 and 2.8% in February 2016.

Measuring early state delinquency rates and later default rates is important to analyze the health of the mortgage loan market. As of today, it appears the mortgage and housing industries are in a good state of health.

But despite this fact, mortgage insurance companies are continuing to charge for mortgage insurance and make a lot of money from it.

Mortgage insurance typically costs between .5% to 1% of the loan amount each year. This means if you have a $100,000 loan, you could pay $1000 per month in mortgage insurance. But the average home price is close to $200,000, so you could spend almost $200 per month on mortgage insurance.

If it is possible, it is highly recommended to avoid having to pay mortgage insurance, especially when you consider how low default rates are. Why should mortgage insurance companies get rich off of you with such a low chance of you defaulting?

But if you put less than 20% down on your home, you probably will need to pay mortgage insurance, or PMI. It is smart to try to save enough money so you don’t have to pay for PMI at all. Below are more reasons you should try to do without PMI and let the mortgage insurance companies get rich off you:

  • May not be tax deductible: Mortgage insurance was tax deductible as of 2017, but only if you had an adjusted gross income under $109,000 per year. This means many families with dual incomes will not be able to write off this expense. The tax write-off for PMI must be renewed each year, and it never for certain that Congress will act.
  • Heirs get nothing: Only the lending institution that wrote your mortgage gets any financial benefit from the mortgage insurance you pay. Even if you die, your heirs will not receive any benefit from your PMI policy.
  • Throwing money away: You must pay PMI until you have 20% equity in your home. If you have an FHA loan issued after June 2013, you will have to possibly pay PMI for the entire life of the loan! With a 10% or more down payment on an FHA loan, you can cancel mortgage insurance but only after 11 years. Even with regular PMI, you may take years to get rid of the extra payment. If you put that money into a good mutual fund investment, you could have tens of thousands of dollars in 10 years.
  • Difficult to cancel: If you have 20% equity in your home, you should not have to pay PMI for a conventional loan. But many lenders require you to send them a letter to cancel the policy. You may need to pay for another appraisal as well to determine if your home is worth enough to cancel the insurance. You may have to spend a few months canceling your PMI.

If you do not have enough money to put down 20%, you may use a piggy back mortgage. If you have a $200,000 home, and only can put down $20,000, you may use an 80/10/10 loan. This is where you have a first mortgage for 80% of the home’s value, a second mortgage for $20,000 and then $20,000 down payment.

You could avoid PMI by doing your home loan this way. But piggyback loans are viewed as riskier by lenders. Some of them are adjustable rate loans where the payment can go up or down. Others may be due to 15 or 20 years. When the loan becomes due, you must refinance it; what happens if your credit is not good enough to do the refinance? You could lose the home if you cannot pay the loan that is due.

PMI is expensive. Unless you think you can get 20% equity quickly, such as in high appreciation areas on the West Coast, you may want to save money to make a 20% down payment instead of getting PMI. With mortgage default and delinquency rates so low, it does not seem fair that you should have to continue to make a PMI payment for years and years. The mortgage insurance company gets rich, and you don’t get anything.

How the Homeowners Protection Act of 1998 Can Help Eliminate PMI

Many home buyers who put down less than 20% at loan closing are required to pay for private mortgage insurance or PMI. In the past, some homeowners had difficulty getting their PMI cancelled once they reached 20% equity.

That is why the US government passed the Home Owner’s Protection Act of 1998. The law took effect on July 29, 1999. It addressed several difficulties that some mortgage holders had with PMI in the past. Generally, the Act requires lenders to provide notification and disclosure regarding the cancelling of PMI. It also requires the lender to return unearned premiums.

As of 2018, regulatory and lending requirements require US buyers to purchase PMI when a loan has a loan to value (LTV) of more than 80%. This means there is less than 20% equity in the property. The PMI premium is paid each moth with your regular payment of interest, principal and escrow. Lenders have not always been uniforming in policies about releasing the borrower from PMI payments once they reached 20% equity. In some cases, borrowers have continued to pay for PMI even when they had more than 20% equity in the home. Once the borrower no longer is paying PMI, this results in a reduction in mortgage payment.

The Home Owner’s Protection Act of 1998 applies to single family homes, investment properties, and multifamily dwellings. The Act states that the lender is required to release the borrower from PMI payments once the balance of the loan is at 80% LTV, if the borrower requests it in writing.

Once the LTV on the loan reaches 78% of the original value of the property, it is required for the lender to automatically terminate the mortgage insurance.  However, release of the obligation to pay PMI is not mandatory on the part of the lender if the borrower does not have a steady payment history.

However, even when PMI is still paid when the borrower has an unsteady payment history, when the loan has been reduced to 50% LTV, and the borrower is current on mortgage payments, the Act requires PMI to be terminated.

The law also requires the lender to provide certain disclosures when the loan closes. The disclosures will vary depending upon the loan being a fixed rate, adjustable or a higher risk loan. Various annual notices are required from the lender depending upon the type of loan. Also, notices must be sent from the lender when PMI is cancelled. Notices also are required if you are denied termination of PMI.

The Act also outlaws any charge or any other cost to be assessed against you for complying with this law. Also, Regulation Z, also known as the Truth in Lending Act, requires that your payment schedule reflect your PMI payments until the date on which the lender must terminate mortgage insurance coverage.

Overall the Act provides you with protection from some past lender abuses who were late in cancelling PMI, or even refused to do so. The Act lays out specific termination deadlines and set up penalties for lenders who refuse to cancel PMI when they are supposed to.

A few years ago it was more difficult to get a loan with no PMI, so many borrowers were forced to take out home loans that required private mortgage insurance.

Want to Cancel PMI Sooner?

Few Americans like to pay PMI every month. But that insurance serves a very good purpose: It pays back the lender if you default on the loan. Why does this matter to you? It matters because PMI allows the lender to extend credit to people who have less than a 20% down payment. Without PMI, millions of families would have to continue to rent until they had at least a 20% down payment.

If you want to get rid of that annoying PMI payment sooner than later, here are some things to do:

  • Remodel the home: If you add living space or remodel your kitchen, you may be able to add value to the home. When the home goes up in value, your equity increases. Once your have at least 20% equity, you can cancel your PMI. Make sure you are adding things to the home that really add value; kitchen and bathroom upgrades are usually a good bet, as is adding an addition on the family room.
  • Prepay the mortgage: Even if you add only $50 a month to your home loan payment, this can add up over time.
  • Order a new appraisal: Some home lenders will look at a new appraisal instead of the sales price when you bought it when they decide if you can have PMI cancelled or not.

If you cannot get the lender to drop PMI, you may want to refinance with another lender. If you have 20% equity, the new lender will not require you to have PMI. But if you have missed mortgage payments lately, you will have trouble getting anyone to refinance the loan. So be sure to make all your payments on a timely basis.

References: Private Mortgage Insurance and the Homeowner’s Protection Act. (2016). Retrieved from http://corporate.findlaw.com/business-operations/private-mortgage-insurance-and-the-homeowner-s-protection-act-of.html   and How to Dump PMI ASAP. (2017). Retrieved from http://www.foxbusiness.com/features/2016/01/27/how-to-dump-pmi-asap.html

Homeowners You Have Rights! Stop Giving Your Money to PMI Companies

Home buyers who put down less than 20% when they bought their home most likely pay for mortgage insurance (PMI for conventional loans; MIP for FHA loans). But with proper planning and some patience, you can dump your PMI payment and lower your housing payment.

Mortgage insurance protects your lender if you stop paying your mortgage. The mortgage insurance premium is part of your mortgage bill each month. How much your PMI payment is depending upon the size and type of loan, how much you put down, and your credit score.

For example, if you have a 700-credit score, make a 5% down payment and have a $200,000 loan, you will pay roughly $156 per month in PMI. Many homeowners do not know that they can get rid of PMI, either sooner or later.

How to Do It the Slow Way

If you are paying your home loan on time and according to the schedule you were given, mortgage insurance on conventional loans eventually will go away by itself. The lender is mandated by federal law to end your mortgage insurance when the loan balance reaches 78% of the original value of the home. But when that time comes, you must be current on the loan. If you have missed payments in the past year, this could delay the removal of PMI.

The problem with this method is that it takes years to get rid of PMI. Note that paying down the loan faster does not make this process go faster? Why? Because automatic ending of PMI at the 78% threshold is not based upon the payments you make. Rather, it is based upon the date your loan is scheduled to get to 78% according to the amortization schedule.

The federal law governing the canceling of PMI is called the Homeowner’s Protection Act of 1998. It only applies to home loans made on your primary residence.

Note that FHA loans are not controlled by the same law. MIP cannot be cancelled on loans that were issued after June 2013 if you put down less than 10%. If you put down 10% or more, you can cancel MIP after all years. That is an awfully long time to wait, especially when you consider you will probably have well above 20% equity in the property by then. Your best option when you reach 20% equity with an FHA loan is to refinance into a conventional loan. This means needing to have your credit score and debt to income ratios up to snuff, so you can qualify under conventional loan standards.

How to Do It the Faster Way

One option is to pay down the loan faster to 80% of the home’s original value when you bought it. Then you can ask the lender to cancel PMI. But the lender is not required to do so. This is different than having 20% equity in the property, based upon the current value on the market.

Experts stress that many people think they can get rid of PMI when they have 20% stake in the home, but this is not always true. Borrowers can ask the mortgage company to cancel PMI based upon the home’s present value. But the borrower may have to wait two or five years after getting the loan to make the request. The lender can reject your request for several reasons, depending upon the investors who own your home loan.

Lenders are more likely to green light a request that is based upon what the home was worth when you closed the loan. You also need to have a good payment history to get approved. This means you cannot have 30 day or more late payments in the last 12 months, or no 60-day late payments in the past 24 months.

Even if you meet all of the above requirements, the lender still may not allow you to cancel PMI. Some lenders will say that the home went down in value and the risk to the lender is too high. Having a second mortgage also can prevent the canceling of mortgage insurance.

The Easiest Way – Refinance

The fastest way to cancel mortgage insurance is to refinance the loan. You have to have a current appraisal on the home. If you can show that you clearly have 20% equity, you do not need mortgage insurance on the new loan.

Even if you do not have 20% equity but you do have cash to pay down on the loan, refinancing could be a more effective option than paying down your current loan. In the latter case, you still are relying on the lender approving your request to cancel PMI. With a refinance, if you show you have 20% equity, the lender cannot force you to have PMI. With a refi, you are in complete control.

References: How to Get Rid of Private Mortgage Insurance. (2013). Retrieved from http://www.foxbusiness.com/features/2013/02/06/how-to-get-rid-private-mortgage-insurance.html

Everything You Need to Remove PMI from Your Mortgage

If you have PMI (private mortgage insurance), you likely anticipate the day when you no longer have to make that monthly payment on top of your mortgage and tax payments. The good news is you can make that day get here faster if you follow some of our tips below.

PMI – What’s It For?

The thing most people do not like about PMI is that you must pay it, but it is not for your benefit. It protects the lender who gave you the mortgage. If you stop making payments on your home, the mortgage insurance protects the lender and pays them back part of what is owed.

You are one of millions of people who pay PMI every year. It is estimated that at least 15% of mortgages in the US have PMI. It takes approximately an average of 5.5 years of payments before the typical homeowner can cancel PMI.

But PMI can be gotten out of in many cases. It is the only type of mortgage insurance that can be cancelled, for the most part. VA loans have mortgage funding fees that cannot be canceled. FHA financing also have mortgage insurance that is permanent in many cases with loans issued after June 2013. The only way to get out of mortgage insurance for most holders of FHA mortgages today is to refinance into a conventional loan.

If you have PMI, here are several ways to get rid of that pesky insurance payment each month:

Wait for It to Cancel

If you have a conventional mortgage with less than 20% down payment, your PMI will eventually be cancelled by your lender automatically. This is done in one of two ways:

  • The loan reaches a 78% loan to value. According to the federal Homeowners Protection Act of 1998, lenders must terminate PMI when the homeowner reaches that LTV. To determine your LTV, you just divide the balance of the loan by the original purchase price.
  • Your mortgage hits the 50% mark. No matter your LTV, the lender must end your PMI when you are halfway through your payments. This means year 15 if your mortgage is 30 years. This might happen before you reach 78% LTV if the mortgage has a balloon payment or a period of interest only payments.

We advise getting a written copy of your PMI cancellation schedule; that way you know far in advance when your PMI payments are supposed to stop.

Request PMI Cancellation

When your home reaches 80% LTV, your lender must remove PMI if you request it in writing. We recommend making your written request several months before your loan reaches 80% LTV. To make a strong case to get PMI cancelled ahead of schedule, you should show the lender the following:

  • A strong payment history. You should have no 30-day late payments in the previous year. You also should not have any 60-day late payments in the last two years. Timely payments are very important to drop PMI.
  • No liens other than first mortgage. Your first mortgage must be the only debt on the home, including second mortgages.
  • Proof of home value. If you pay for an appraisal, you can prove the value of the home has not gone down.

Order a New Appraisal

Home values are rising across America in 2018. The economy is strong, and many people are seeing double digit appreciation on their home values. If this is happening in your region, you might ask to cancel PMI based upon your home’s value. This will usually necessitate a new home appraisal. Before you spend up to $500 on a new appraisal, you should consult with your lender. Certain lenders only accept appraisals from certain appraisers. Others might accept a broker’s price opinion or BPO. This costs half as much as an appraisal.

Increase Value with Improvements

Depending upon your area, you could increase the value with a smart remodeling project. A reasonable kitchen upgrade or outside upgrades such as windows or siding can provide a nice boost in home value. It could be enough to put you over the top and get rid of PMI. Remember to not overspend on any upgrade. This means you should not upgrade a room in the home well beyond what others are doing in your neighborhood. Or, you will not recover that extra money you spent.

Sell the Home

If nothing else works, you can always sell the property to dump PMI. But this is a last resort.

Bottom Line on Removing PMI in 2018

It is common for the homeowner and lender to argue over canceling private mortgage insurance. If you are finding your lender is being difficult about cancelling PMI, you can talk to the Consumer Financial Protection Bureau at 855-411-2372. Make a complaint if you feel the lender is not agreeing to cancel your PMI when they should.