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How to Remove the Monthly Expense of PMI

Though no one welcomes this added expense, it's often a necessary compromise when purchasing a home or refinancing. The good news is that it doesn't last the entire life of the loan. In fact, there may be actions you can take right now to get rid of PMI sooner!

Private mortgage insurance, or PMI as it's more commonly called, is an insurance that is often required if you bought a home with a down payment of less than 20 percent. Mortgage insurance protects the lender from defaulted loans.

As the borrower, you pay the premiums. However, many homeowners don't realize that you will also pay PMI if you refinance your home with less than 20 percent equity.

Ways to Remove Private Mortgage Insurance

You must have at least 20 percent equity in your home to get rid of PMI. When your equity reaches 22%, PMI will be dropped automatically. However, you can ask for PMI to be removed when your equity reaches 20%! Please note that PMI is different from FHA insurance.

The only way to eliminate FHA insurance is to refinance into a non-FHA-insured loan. If you have at least 20% equity in your home when you refinance out of an FHA loan, then you will not need Private Mortgage Insurance.

Removing PMI Sooner

Not quite at that 20 percent equity? Use these methods to cancel your PMI sooner or to strengthen your negotiating power.

Get a new home appraisal: Sometimes a new appraised value will be considered when deciding whether the 20 percent equity threshold has been met. The appraisal will cost about $450 to $600 --a small fee for the potential of big savings. However, you'll want to inquire if removing PMI in this way is possible with your loan.

Call our office, and we can help answer your questions about using appraisals to getting rid of PMI.

Remodel your home: You can increase your home's market value by adding a room or remodeling. A new loan-to-value ratio can be calculated and then, using the new value, you will be in a stronger position to negotiate the elimination of PMI.

Refinance to get rid of PMI: Refinancing will help you not only to get rid of PMI, but you can also reduce your monthly interest payments! There's something to keep in mind with this tactic: some mortgages have a "seasoning requirement" that means you might have to wait at least two years before you can refinance to get out of PMI expense.

Call our office to learn more about this requirement if your loan is less than two years old and you are considering a refi to eliminate private mortgage insurance.

Other conditions to canceling PMI:

  • PMI cancellation requests must be made in writing.

  • Mortgage payments must be up-to-date

  • Demonstrate a good mortgage payment history

  • You might be asked to show that you don't have other liens on your home, such as home equity line of credit.

  • You might also have to get an appraisal to prove that your loan balance is not more than 80 percent of your home's current value.

There are many ways to get rid of PMI sooner than you think! Call our office today, and together we can figure out a plan to eliminate this expense and put that hard earned money back in your pocket.

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