The Homeowners Protection Act of 1998 requires that lenders remove private mortgage insurance when a borrower reaches a 78 percent loan-to-value (LTV) ratio.
If your down payment is less than 20% of the Appraised Value you will most likely have to pay Mortgage Insurance. One way to get rid of PMI is to simply take the purchase price of the home and multiply it by 80%. Then pay your mortgage down to that amount. Once you pay the loan down, you can have the PMI removed.
Refinancing to Eliminate PMI
Refinancing your home loan is a strategic option when considering ways to eliminate PMI. By securing a new loan through refinancing, homeowners can leverage any increase in their home's value to remove PMI effectively.
To request cancellation of PMI, you should contact your loan servicer when the loan balance falls below 80 percent of your home's original value (the contract sales price or the appraised value of your home at the time it was purchased).
In most cases, removing mortgage insurance is a good thing. It will lower your monthly payment. Just remember to do some research before you make a decision. Depending on how you remove your mortgage insurance, you may have to consider other factors, such as refinancing expenses.
Legally, you can own a home without homeowners insurance. However, in most cases, those who have a financial interest in your home—such as a mortgage or home equity loan holder—will require that it be insured.
Get an Appraisal
Many lenders (like Fannie Mae) also require a two-year “seasoning requirement,” meaning you can't have PMI removed until you've made two years' worth of on-time payments—even if your equity has grown above 20%. If it's been less than five years, you might even be required to have 25% worth of equity.
Determining equity is simple. Take your home's value, and then subtract all amounts that are owed on that property. The difference is the amount of equity you have.
PMI is automatically removed when your loan-to-value (LTV) ratio reaches 78%. You can request to have PMI removed from your loan when you reach 80% LTV in your home. You can achieve an 80% LTV ahead of schedule if your home's value increases or if you make extra loan payments.
Mortgage insurance lowers the risk to the lender of making a loan to you, so you can qualify for a loan that you might not otherwise be able to get. Typically, borrowers making a down payment of less than 20 percent of the purchase price of the home need to pay for mortgage insurance.
If you think you might be close to having PMI removed based on your current home value, you'll need to pay for an appraisal, which can cost between $313 and $422 for a single-family home, according to HomeAdvisor. If you end up qualifying for PMI cancellation, that upfront cost can be worth it.
Mortgage insurance may be an additional monthly expense you'll need to consider. If PMI is required, your lender will likely include your PMI expense in your monthly mortgage payment automatically. The lender oversees selecting the mortgage insurance company, so you won't be able to shop around.
To avoid paying PMI on your mortgage, you'll need to have 20% of the home's sales price to use as a down payment on a conventional loan. You could also take out a piggyback loan, if it's available from your lender. In this case, you'd make a 10% down payment on your home and use a second mortgage to get to 20% equity.
The influence of down payment amount — PMI is only required for homebuyers who make down payments of less than 20% of the home's value.
The higher your LTV ratio, the higher your PMI payment. Your loan type: Because adjustable-rate mortgages (ARMs) carry a higher risk for lenders, your PMI might be more expensive with an ARM than with a fixed-rate loan. Your down payment amount: The closer your down payment is to 20 percent, the less your PMI.
A $50,000 home equity loan comes with payments between $489 and $620 per month now for qualified borrowers. However, there is an emphasis on qualified borrowers. If you don't have a good credit score and clean credit history you won't be offered the best rates and terms.
You'll start off with a certain level of equity when you make your down payment. Your home equity can increase through making mortgage payments and home improvements. You'll also build equity over time as your home's value increases.
HELOC payment examples
For example, payments on a $100,000 HELOC with a 6% annual percentage rate (APR) may cost around $500 a month during a 10-year draw period when only interest payments are required. That jumps to approximately $1,110 a month when the 10-year repayment period begins.
Ending PMI reduces your monthly costs. Some lenders and servicers may allow removal of PMI under their own standards. The information below describes the legal requirements that apply to mortgages for single-family principal residences that closed on or after July 29, 1999.
You can take your name off a mortgage without refinancing your loan by selling the home, having the new owner take on a loan assumption, asking your current lender to modify the loan, or filing bankruptcy. You can also pay off the entire mortgage if you and your co-owner have the means.
When PMI is canceled, the lender has 45 days to refund applicable premiums. That said, do you get PMI back when you sell your house? It's a reasonable question considering the new borrower is on the hook for mortgage insurance moving forward. Unfortunately for you, the seller, the premiums you paid won't be refunded.
Avoid any admissions of fault or liability when talking to your adjuster. Such statements can be used to shift blame, potentially decreasing the amount you might be compensated. Instead, focus on describing the damage and the events as they happened, without inserting personal opinions about who might be at fault.
While mortgage insurance protects the lender, homeowners insurance protects your home, the contents of your home and you as the homeowner. Once your mortgage is paid off, you have 100% equity in your home, so homeowners insurance may become even more crucial to your financial well-being.
A residential development wouldn't be economically feasible for builders without requiring this collective commitment to sharing costs and maintenance. That's why there's no simple way to “opt out” of the HOA's covenants without selling the home.