PMI Removal

How to remove PMI

When you think your home has appreciated to the point where you have enough equity to cancel your monthly PMI (Private Mortgage Insurance) payments - what do you do next?

You're not the only person to ask this question. With the advent of 95%, 97%, and even 100% purchases, more and more people are putting less money down and counting on future appreciation. That's about 1.5 Million homeowners in 1999.

Keep in mind that you need 20% equity to proceed. There is a quick way to do this calculation:

Multiply your current loan balance by 1.25. Your home has to be worth at least this much to legally get rid of the $40 to $120 premiums you pay every month. The 20% in equity can be earned by paying down the mortgage over time, appreciation, or home improvement.

Or you can of course refinance your loan. Then the LTV (and PMI amount) is based solely on the appraised value and new loan amount, which makes a lot of sense if rates are lower now than your current rate, or if you PMI amount drops enough.

Why does PMI exist?

Lenders have determined that those with more than 20% equity are less likely to default on the mortgage. PMI allows homeowners to purchase a home with less than 20% down by insuring the lender against default. If not for PMI, everyone would be required to put at least 20% down on the mortgage.

What has changed, I hear it's hard to get rid of PMI?

The Private Mortgage Insurance act took effect in July of 1999. It gives homeowners a number of rights.

  1. Lenders have to give you a written statement explaining that you have PMI and when you'll be allowed to cancel it.
  2. The lender must allow you to cancel PMI when your equity is 22% or more.
  3. And you can ask for permission once your equity reaches 20%.

The new law only affects new mortgages funded after July, 1999, but Fannie
Mae and Freddie Mac have said they will apply the new rules to the older loans.

First Step - what is my home worth?

For a start, you can find online home valuation estimations on the web and get a rough sense of what your home is worth. But sometimes the web sites can be way off the mark unless your home is located in a very larger metropolitan area. And most importantly, these valuations are not acceptable for PMI cancellation purposes by the largest owners of PMI-insured mortgages - Fannie Mae and Freddie Mac.

Homeowners can also contact Bardstown Appraisal Co. and ask for a PMI Cancellation Consultation.  This consultation will be based on current sales of homes in your neighborhood or area.  This allows you to view the current range of value that properties are demanding in the market.  There is a fee for this service that can be paid thought our on-line ordering form for a faster response. 

You may then have your lender order a full appraisal for PMI removal from Bardstown Appraisal Co.  At that time, the fee for the consultation will be credited towards the price of the full appraisal so that you can cancel your PMI.

I think my home is worth enough, what do I do next?

To qualify for the cancellation, you'll have to demonstrate to the lender that the property is as valuable as you think it is. Don't hire someone and pay for a full appraisal before contacting the lender that services your loan.

Under Fannie Mae and Freddie Mac rules, it is the lender-servicer, not the homeowner, who must choose the appraiser. If you pay $300 for an appraisal, you're gambling that the servicer will accept that appraisal. Fannie Mae requires that all of its PMI Appraisals be ordered by its servicers from its network of approved appraisers.

Request in writing to your current lender-servicer that the PMI be cancelled, and ask them to order an appraisal to verify the equity if you are depending on appreciation or home improvement to earn the equity. If you have paid on the mortgage to such a point that you have 20% in equity, they can cancel without an appraisal in some cases.

When can't I cancel PMI?

The new laws apply to loans funded after July of 1999. However, Fannie Mae and Freddie Mac have said they would honor the new laws on the old loans.  However, you need to review your loan document with your lender; some lenders require 25% equity. FHA loans are not required to drop PMI - if you have an FHA loan - expect to keep paying PMI for the life of the loan. Refinancing may be the best option for you.

Payment history is very important. If you have a payment more than 30 days late in the past year, or a payment more than 60 days late in the past two years, the lender is not required to drop PMI.

If you have a second mortgage or Home Equity Loan that makes the LTV of the first and second mortgage more than 80%, the lender is not required to drop the PMI.

Order an Appraisal!