So you have Private Mortgage Insurance (PMI) on your loan, that means the lender was willing to loan you money without having you to put 20% down.
That is GREAT, because without PMI, you wouldn’t have be able to purchase the home.
So what is PMI, well it is insurance, that really doesn’t benefit you, it benefits the lender. So if you foreclose on your home, and lets say your owe $100,000, but during the foreclosure sale, it sold for $70,000.
Typically the lender would have been out $30,000. But along comes the PMI Company, which insured the home for 30%, i.e. $30,000. The PMI Company will then cut the lender a check for $30,000 and technically the lender isn’t out any money.
But PMI can be an additional cost to the borrower each month, so how do you get rid of it? Well there are 2 different ways:
Request the PMI be removed! This comes down to a law that went into effect in 1999 called the Homeowner Protection Act (HPA).
To do this you have to be in your home for a minimum of 24 payments, not necessarily 24 months but 24 payments.
Then contact you lender and ask for the PMI to be removed. They will typically ask you to fill out some paperwork to ensure you have made all of your payments on time, don’t have any other liens or judgments on the home. They will do this by:
1. Credit Report
2. Title Report
3. Borrower’s certification.
Then they will order up an appraisal, at your expense, to see if your value is there.
Value needs to be 80-78% of the original value, based on the Initial Amortization Schedule. That form can be found in your original closing documentation. Each lender will be a little different in the exact percentage, so call to confirm.
Once all those steps have been completed, the Lender is obligated under the HPA to remove the MI, and boom…money each month saved.
So what happens if after 24 payments, you value is not there.?
Then I would recommend that each 12 months after that you can check again, and again, until you can get the PMI removed.
But how do you check with out ordering and appraisal each and every time and spending $500? Here are some suggestions:
1. Call you Realtor, any good Realtor should be in contact with you anyways, but they will always be glad to hear from you. Have them do a CMA or Certified Market Analysis, which they will do typically for Free.
2. Check out what your County Assessor has valued your home as.
3. Sometimes you can go online, to various web site and they will give you value, although the web sites typically are not as accurate as your Realtor.
PMI will automatically fall off, eventually!
At closing you received a PMI disclosures, it will indicate when you PMI is going to automatically fall off, typically around the 15th year you have the home.
The borrower will typically, about 30 days prior to termination of PMI, get a letter in the mail, indicating that PMI is being cancelled, date at which is being cancelled, and what the new monthly payment will be, and when that payment will start.
Private Mortgage Insurance is a great way for a borrower to get into a home with little or no down payment. Without this option, many people would have to save that 20% for a downpayment.
But PMI can be removed, and it is up to the borrower to see out and ask for the removal. If not, the PMI Company will continue to take your money each and every month.
What if I have FHA/RD Mortgage Insurance?
Now the question comes up, what if I have a FHA or RD (Rural Development) loan, can I get my Mortgage Insurance (MI) removed.
The answer it typically NO, bot FHA and RD changed rules in the past years that has made their monthly MI non-removable. Which means you will pay monthly MI until the loan is paid off.
In this circumstance, the only way to remove the MI is to refinance the loan out of FHA/RD and into a Conventional Loan.
Although there is closing costs associated with a refinance, the monthly savings over the life of the loan from having the MI removed can outweigh the expense of getting a new loan.
If you did get your loan before June 3, 2013, then after 5 years, you do have the potential of removing the FHA MI, contact your lender and you will follow similar steps as listed above.
Link here is for a Brochure from a Private Mortgage Insurance company with additional information