Dropping your Principle Mortgage Insurance
Let’s chat PMI!
If you are putting less than 20% down on your home, your lender will most likely require you to get private mortgage insurance. This comes as an extra charge on your monthly mortgage bill that can sometimes feel like an unwelcome guest. With the right strategies however, you can work to remove this extra charge, saving you money in the long run. We’ve compiled a list of 5 steps to take to potentially get your PMI removed.
Confirm Your Current PMI Status:
Start by reviewing your mortgage documents or contacting your lender to determine if you're currently paying PMI. Take note of the amount you're paying each month, the date when PMI was scheduled to terminate, and the criteria your lender requires for PMI removal.
Meet Lender's Criteria for PMI Removal:
Lenders have specific criteria that must be met to remove PMI. While these criteria may vary, they often include:
a. Loan-to-Value (LTV) Ratio: The LTV ratio is the percentage of your home's value that is mortgaged. Typically, lenders require an LTV ratio below 80% to eliminate PMI. This can be achieved through a combination of paying down your mortgage balance and any home appreciation.
b. Timely Payment History: A good payment history is crucial. Lenders typically require a history of on-time payments for at least 12 to 24 months before considering PMI removal.
c. Property Appraisal: Some lenders may require a new appraisal to verify the current value of your home. If your home's value has increased significantly, it can help lower your LTV ratio.
Request PMI Cancellation:
Once you have met your lender's criteria, submit a written request to cancel PMI. Include your loan number, property address, and any supporting documents, such as an appraisal report or payment history. Keep a copy of the request for your records.
Automatic PMI Termination:
In some cases, PMI may be automatically terminated once you reach a specific threshold, even if you haven't requested its removal. Review your loan agreement to see if it includes an automatic termination clause and ensure you reach the necessary conditions to trigger it.
Refinance Your Mortgage:
If your lender does not allow for PMI removal or you're unable to meet the criteria, refinancing your mortgage might be a viable option. By refinancing with a new loan, you may be able to eliminate PMI if the new loan-to-value ratio is 80% or less. If you would like to learn more about this option, we would love to connect! Things like home renovations, or a desirable neighborhood can sometimes add equity into your home quicker than you would think.
Note in the state of Minnesota Per the Attorney General: Find more here
“Minnesota law, unlike federal law, allows homeowners to benefit from market appreciation. Under Minnesota law, the value of your home is based on what it would be worth if you sold it today. For instance, if you bought your home for $100,000 with 5 percent down and your house is now worth $130,000, you probably are eligible to cancel PMI under Minnesota law because you owe less than 80 percent of the market-value of your home.
You will need to hire an appraiser to establish the market value of your home to prove that you owe less than 80 percent of its current value. You should feel confident in the market value of your house before you obtain an appraisal. If the appraisal value falls short, you will have paid for the appraisal and must still continue to pay PMI, as well. Minnesota law gives you the right to shop for and pick an appraiser, as long as he or she is “reasonably acceptable” to your lender. A Minnesota-chartered lender cannot reject your appraiser without reason and cannot require you to pick only from a short list approved by the lender. Nonetheless, before you pay for the appraisal, contact your lender and make sure that the appraiser is acceptable.”
The law regarding mortgage insurance for Federal Housing Administration (FHA) and Department of Veterans’ Affairs (VA) loans is different from conventional loans. FHA and VA loan mortgage insurance is paid to the FHA and VA and cannot be canceled by paying down your mortgage principal faster.
If you have any questions on your home value - PGH is always willing to run a complimentary neighborhood analysis. This will help you determine if your home has appreciated significantly enough to drop your PMI.
If dropping your PMI isn’t an option right now, you could also make extra payments towards your principle to work towards the 20% mark quicker.
Cheers to cost savings friends!
-Paige