PMI, also known as Private Mortgage Insurance, allows buyers to purchase their home with less than a 20% down payment. If you are paying PMI, the goal should be to get rid of it as fast as you can since it only benefits the lender and the insurer.
For most of us, the mortgage payment not only pays off the mortgage loan but a portion also gets put into an escrow account to pay for real estate taxes and a variety of different types of insurance (homeowners, hazard, flood, PMI, etc).
If you purchased your home with conventional financing and put less than 20% down, you are most likely paying PMI. Private mortgage insurance protects the bank in the event that you stop making payments and the loan goes into default. All too often the borrower pays this insurance years after the loan to value meets the minimum requirements, and, as a result, ends up paying thousands more than necessary.
So how do you get rid of PMI?
The federal Homeowners Protection Act gives you the right to remove PMI from your home loan in two ways:
- You can get “automatic” or “final” PMI termination at specific home equity milestones.
- You can request to remove PMI when you reach 20 percent home equity.
The lender or servicer must automatically terminate PMI when your mortgage balance reaches 78 percent of the original purchase price — in other words when your loan-to-value (LTV) drops to 78 percent. This is provided you are in good standing and haven’t missed any mortgage payments.
The servicer also must stop the PMI at the halfway point of your amortization schedule. For example, if you have a 30-year loan, the midpoint would be after 15 years. If you have a 15-year loan, the halfway point is 7.5 years.
Instead of waiting for automatic cancellation, you have the right to request that the servicer cancel PMI once your loan balance reaches 80 percent of the home’s value. This can be achieved by appreciation, home improvements (renovations such as kitchens, baths, or many other items), or by paying down the principal balance of the mortgage (or any combination of the three).
If you think it’s time to get rid of your PMI, you can contact your lender/bank/loan servicer that you send your mortgage payments to. Your loan servicer will be able to help you with the cancellation procedure since every lender has different policies.
Most banks require a real estate appraisal by a state-certified appraiser as the primary proof required to eliminate your PMI insurance. Once your lender gives you the ok to get an appraisal of your own, give us a call. We offer a free initial consultation and will help you to determine if you have sufficient equity in your home to enable you to cancel your PMI.
Let us know if you are in need of a PMI Removal appraisal in the Upstate of SC from Greenville to Greenwood and surrounding areas. Give us a call today at 864-242-1099 with any questions.