If you live in an area where home prices have skyrocketed (meaning you live just about anywhere in America), you could be sitting on enough home equity to remove PMI. But before your lender will cancel your PMI, you'll need to get an appraisal to prove your home is worth more than you paid for it.
Even if you don't ask your servicer to cancel PMI, in general, your servicer must automatically terminate PMI on the date when your principal balance is scheduled to reach 78 percent of the original value of your home. For your PMI to be cancelled on that date, you need to be current on your payments.
Yes. If your home value increases — either by housing market trends or by you investing to upgrade the property — you may be eligible to request a PMI cancellation. You'll likely need to pay for a home appraisal to verify the new market value, but that cost can be well worth it to avoid more PMI payments.
Home appraisals typically range between $250 to $500, but the savings you gain from eliminating PMI will more than offset that. (Some lenders might also accept a broker price opinion, which is cheaper than a professional appraisal.)
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).
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.
Once the home loan's LTV value reaches 80 percent, PMI is usually no longer required and can be requested to be removed from the monthly mortgage payment. Once a mortgage drops to 78 percent, the federal Homeowners Protection Act requires the lender to cancel PMI automatically.
Simply put: if you have an FHA loan term of more than 15 years, have been paying it for at least 5 years, and have an LTV ratio of 78% or less, PMI can be removed from the loan.
An appraisal that is higher than the purchase price puts you further down the path of paying off your PMI. It adds equity to your newly purchased home and reduces the shortfall in your less than 20% deposit. Consequently, the amount of PMI you need will be lower.
Unfortunately, it's only possible to remove the mortgage insurance from an FHA loan without refinancing if your loan origination date is after January 1, 2001. If you received your loan between then and June 3, 2013, your mortgage lender should cancel your MIP once you reach 78% LTV.
Most lenders require that your LTV ratio be 80% or lower before they will cancel your PMI. Note: Some lenders express the percentage in reverse, requiring at least 20% equity in the property, for example.
In a purchase transaction, a higher appraised value doesn't have much of an impact. When evaluating a loan application, lenders will use the lower of the appraised value or sales price.
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.
Ask to cancel your PMI: If your loan has met certain conditions and your loan to original value (LTOV) ratio falls below 80%, you may submit a written request to have your mortgage servicer cancel your PMI.
For a little more than a decade, PMI was tax deductible for homeowners who met eligibility requirements and itemized their deductions. Since the 2022 tax year, it's no longer possible to take deductions on new mortgage insurance payments, as the PMI deduction has expired.
Loans with shorter terms and larger down payments build equity significantly faster than loans with longer terms. Generally speaking, if you have a good credit score and make your monthly payments on time, you should be able to build sizable equity in your home over the course of five to 10 years.
If the appraisal sets the home value at less than your offer amount, however, you won't get a loan that covers your offer price—even if you can put down 20% of the offer price and the lender has preapproved you for a loan that covers that amount.
A higher than anticipated appraisal isn't great news for the seller, but unless they've written something into the sales contract, there's not a lot they can do after they've accepted the offer. If they back out, they would be in breach of contract.
Your home equity needs to be at least 20%, or you will need to pay for PMI. The good news is that you can request that your lender remove PMI once the principal balance of your loan reaches 80% of the original value of the property. To request removal, you will need to submit a request, in writing, to your lender.
For recent FHA loans, you will need to pay insurance premiums for at least 11 years and you may need to pay them for the life of the loan. Some FHA homeowners refinance into a conventional loan to stop paying for mortgage insurance. Learn more about how to stop paying for mortgage insurance.
More expensive for lower credit scores: Even if you do qualify for a conventional loan, if your credit score is on the low end and you're making a low down payment, you might find that PMI ends up being more expensive than what you'd get with MIP.
If you can easily afford it, you should probably put 20% down on a house. You'll avoid paying for private mortgage insurance, and you'll have a lower loan amount and smaller monthly payments to worry about. You could save a lot of money in the long run.
Pay PMI monthly if:
You don't have a lot of cash, but you do have high credit scores. You need to keep some cash available for repairs and improvements. You don't plan to stay in the home long enough to break even on the upfront payment.
You pay for PMI as part of your monthly escrow payment. That means in addition to paying your property taxes and homeowner's insurance into your escrow account, you also pay your monthly PMI fee into the escrow account as well.
it is important to note that the appraiser's role is not to appraise the property to match a specific sales price or loan amount, but rather to provide an accurate valuation based on market conditions.