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The Art of Getting Rid of PMI

 

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The Art of Getting Rid of PMI

May 18, 2020

Any time a home is purchased with a conventional loan and with a deposit of less than 20 percent, your lender will require the purchase to pay PMI, or private mortgage insurance.

Private mortgage insurance is quite literally an insurance policy for the lender.  The insurance will reimburse the lender if the purchaser should default on the loan.

Let’s face it, PMI is expensive.  This additional money that is included in the mortgage payment each month can mean hundreds of dollars more out of your pocket.

But is it possible to get rid of the PMI?   It is…

In order to cancel your PMI, you must have at least 20 percent equity in your home.  Once you determine you have paid your mortgage down to 80 percent of your original appraisal, you can write to your lender to formally request the PMI be removed.  If you pay down to 78 percent, the lender is automatically required to remove the PMI.PMI

If you are not close to the required percentage but believe your home will appraise at a higher value than it originally did when you purchased the home, you can look into refinancing your home loan with a new appraisal.  A new appraisal will cost you anywhere from $300 to $500, but refinancing with a higher appraisal that gives you 20 percent equity will allow you to refinance without PMI.  As long as the refinance does not come along with a higher interest rate, the monthly savings is well worth the cost of the appraisal.

But what if you purchased your home with a loan backed by the Federal Housing Authority, known as an FHA loan?  The rules and restrictions are a bit different, and you will find they are a bit more strict.

With an FHA loan, you are able to put down less than the standard 20 percent that is generally required for home loans.  With the ability to purchase a home with as low as only 3.5 percent down, you are required to pay FHA mortgage insurance.  This mortgage insurance is paid in two steps.  First is the up-front insurance premium that is due at closing.  This amount is paid to the FHA by the lender and the amount is then rolled into your mortgage.  You then pay monthly mortgage interest on the premium for the term of the loan.

So how can you get rid of the FHA mortgage insurance?

You must fall under the below criteria to have the mortgage insurance removed.

  • Your loan was opened prior to June 3, 2013
  • Your loan is in good standing
  • You have already paid on your loan for 5 years if you have a 30-year mortgage (note: If you have a 15-year mortgage, the 5-year rule does not come into play)
  • You have paid at least 78% of your loan.

If you do not meet the above requirements for an FHA loan but have enough equity in your home, you might still be able to get rid of the mortgage insurance by refinancing into a conventional loan without PMI.

Even if you just purchased your home within the last few years, this might be an option to investigate as home value have continued to rise in many markets.

 

Massachusetts Real Estate Attorney | New England Title & Escrow Services

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