PMI Removal: Here’s How to get rid of PMI

Most lenders require a 20% down payment when offering a mortgage. However, many people cannot afford 20% and pay less – such as 10%.

Others choose to pay a smaller down payment to keep their  cash for repairs, interior upgrades, or emergencies.

Borrowers whose down payment is less than 20% are subject to paying a Private Mortgage Insurance (PMI).

PMI protects the lender in case the borrower defaults. The cost of PMI can range from 0.3% to 2% of the mortgage balance, although it varies based on multiple factors.

Since PMI is an added cost to your monthly or annual mortgage payments, getting rid of it would be great. .

But is it possible?

Yes, it’s possible. Keep reading to know your options.

 

What is PMI?

PMI is a type of insurance that protects a mortgage lender when the borrower defaults. This insurance is only applicable to homebuyers who don’t pay the 20% down payment because the lender considers them risky.

PMI is a significant cost to homeowners because borrowers often pay an additional $30 to $100 every month for a loan principal of $100,000.

The amount of PMI that a borrower pays depends on:

• Their credit score
• Their down payment amount
• Their loan term

Although costly, PMI allows homeowners to acquire houses with a low down payment.

While PMI payments can be expensive in the long run, borrowers don’t have to be stuck with PMI payments forever.

Which brings us to our next sub-topic: getting rid of PMI.

 

When Can I Get Rid Of PMI?

According to the federal Homeowners’ Protection Act (HPA), a mortgage borrower has the right to ask for PMI cancellation when their home’s equity surpasses 20% of the value of the property.

Here are three effective ways for getting rid of PMI.

1. Pay Your Mortgage As You Wait For Automatic Cancellation

According to the federal Homeowner’s Protection Act, the lender should automatically cancel your PMI when:

• The loan balance is 78% or less of the current appraisal value of the house.
• Your payments are halfway to the amortization schedule. For instance, if your loan term is twenty years and you have paid for ten years, the servicer/lender can cancel the PMI.

However, these two options only apply when you have been making  your mortgage payments on time.

2. Request for PMI cancellation

Is your loan balance equivalent to 80% of the original value of your home? If yes, you have the right to ask the lender for PMI cancellation because you already have 20% home equity!

For instance, if you borrow $100,000 to buy a house and pay $20,000 of the principal, you have 20% home equity.

Here are a few things to follow for a successful PMI cancellation:

• Make the cancellation request in writing.
• Ensure you have a good loan payment history. Lenders consider borrowers with late payment cases as risky, and this may prevent the lender from canceling the PMI.
• Ensure that you don’t have junior liens, such as a second mortgage. Your lender may conduct background research to determine if you have another mortgage.
• Know the current value of your home. You may need to do a home appraisal to determine the current value of your house. If the value of the house has increased, the chances of cancellation will be higher.
• Your amortization form should help you determine when your loan balance will be equivalent to 80% of the home value. You can also ask your lender to tell you when you will get to 80%.

Note: If feasible, you can increase your monthly payments to reach 20% home equity more quickly.

3. Refinance the Mortgage

Review the current interest rates offered by different lenders. Has the mortgage interest decreased? If yes, refinancing is an excellent option for you.

In addition to helping you access a lower interest rate, refinancing can help you get rid of PMI if the loan balance will be equivalent to or less than 80% of the home equity.

Refinancing works well in houses with an increased value. For instance, assuming that you bought the house with a 10% done payment and its value has risen by nearly 20%; your current home equity will be more than 20%.

Nevertheless, you will still need to weigh the cost of refinancing to ensure that you won’t spend more than what you would save. A refinancing calculator can help you with the cost calculations.

Pro Tip: Order an Appraisal Today to Know Your Home’s Current Value Do you know the current value of your home?

In the current hot real estate market, the value of your home might have increased, especially if you took out a mortgage more than five years ago.

In that case, you might need to know its value to make an informed decision regarding your PMI removal.

Stafford Appraisals is here to help you with the home appraisal processes. If you meet your lenders’ requirements for PMI removal, contact our team for an appraisal quote. With more than 25 years of experience in home appraising, we believe that we are the right team for you. We are located in Frisco, Texas, and appraise residential properties in Allen, Anna, Aubrey, Carrollton, Celina, Corinth, Denton, Fairview, Flower Mound, Frisco, Highland Village, Lewisville, Little Elm, Melissa, McKinney, Oak Point, Pilot Point, Plano, Princeton, Prosper, and The Colony. .

 

PMI Removal FAQ

Is PMI Automatically Removed?

Yes, your lender can automatically remove your PMI if:

• The loan balance is 78% or less of the current appraisal value of the house.
• Your payments are halfway to the amortization schedule
• You consistently pay your mortgage, and your existing home’s value is high

 

How Can Stafford Appraisals Determine The Value Of My Home?

Our appraisal considers the location of your house, amenities, and the current conditions of both the interior and exterior aspects.

We also compare the home to others recently sold in the neighborhood to determine its possible value.

Our team then compares and reconciles the comparable properties of the house into a single value while still considering the current market trends for homes similar to yours.

 

What Can I Expect During The Appraisal Process?

Our team will collect, verify and analyze data about your home and the market. After that, we will schedule a home observation to take data, measurements, and photos. We will compile the data and write you a report based on our analysis and observation.

 

Will I Get A Copy Of The Home Appraisal?

Yes, if the homeowner ordered the appraisal, we give the homeowner a copy of the appraisal report. However, if the lender ordered the appraisal from us, then legally, we can only give the report to  the lender, and the lender can provide you with a copy of the report.

For more information on any of these services, please feel free to contact us and we’ll be more than willing to assist!