The Skinny of Private Mortgage Insurance
Buying a home: you scrimp, you save, you sacrifice, and eventually, you get approved for a mortgage! And while there are many different costs associated with buying a home, some people may need to pay for Private Mortgage Insurance (PMI) on top of everything else.
Definition: You need to pay PMI when your down payment is less than 20% of the price of the property. This protects your mortgage lender, not you, in case you default on your loan.
Your PMI is purchased through your mortgage lender. The Federal Housing Administration (FHA) also offers PMI for qualified buyers. But you know what is better than qualifying for a mortgage with PMI? Knowing how to get rid of PMI. Which means more money in your pocket.
Did you know? Once you meet certain conditions, you can actually get your PMI payments removed!
When Can I Get Rid of My PMI?
To get rid of your PMI, you may request your lender remove your mortgage insurance when you have reached 20 % equity (80% LTV). However, they are not required to remove it until you have reached 22% equity (78% LTV). By law, your mortgage lender must disclose how much time it will take for you to pay enough of your loan so that you can say adios.
Keep in mind: You cancel the PMI you have with your private mortgage lender through the amount of equity you have. However, you can get rid of the PMI you have with FHA only by refinancing with a mortgage that is not insured by the FHA.
Back to your private mortgage lender. If you are unsure of how close you are to that magical 20% of equity, just ask your lender! Again by law, they must eliminate your PMI once you pass that lovely 22% threshold – even if it is only by .05%!
So Tell Me – How Do I Get Rid of My PMI?
OK, let’s get to the nitty-gritty: how to get rid of PMI. Here are some options:
- Refinance: If the value of your home has increased enough, you won’t need to get PMI. Better yet, when you refinance, you may also get the benefit of lower interest rates. That’s a two-for-one savings! But you also need to know, some mortgage lenders require that your loan be at least two years old before refinancing. Ask your mortgage lender for their approval requirements.
- Get a new appraisal: House prices go up, and they also go down. But if prices in your area have gone up, getting a new appraisal on your home could mean the difference between paying PMI and not. Note that you may need to pay for the cost of the appraisal. Also, the new appraisal price may not be enough to do away with your PMI.
- Prepay your mortgage: If you are one to plan ahead, prepaying on your mortgage can steadily get you to 20% equity. Even with a mere extra $50 a month – and some patience – can get you to the necessary point sooner rather than later.
- Let’s renovate!: Creating an addition, adding a deck, or a pool, or a garage can potentially increase the market value of your home. With certain improvements, your loan-to-value ratio, based on the new market value, can cause you to reach 20% equity – and no more PMI. But before you jump into renovations, figure out how much they will cost and how your home’s market value will change. A reputable real estate agent can help you determine these amounts.
But a Few More Things…
It’s not quite enough to get your home equity 20% or greater. There are a few more things you need to do regarding how to get rid of PMI, including:
- Request the cancellation of your PMI in writing.
- Make sure that you are current on your mortgage payments. You also need to have a history of timely payments.
- Possibly show that you don’t have any liens on your home. Think home equity loans or lines of credit.
- Get an appraisal to prove that the balance of your mortgage is less than 80% of your home’s current value.
Add Shamrock Home Loans into Your Equation
Knowing how to get rid of PMI is exciting, while dealing with the numbers can be overwhelming. Enter Shamrock Home Loans. Determining home equity values, dealing with refinancing, and calculating PMI is old hat to us. If you think it’s time to give your PMI the boot, talk to us at Shamrock Home Loans. Enjoy home ownership, this time without the PMI.
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