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.