Say Good-bye to Your PMI

Say Good-bye to Your PMI

When you bought your home, you might have had to get Private Mortgage Insurance (PMI). 

If so, you might have been paying it for a while and it could be time to petition your loan servicer to stop this payment requirement.

For a quick recap — PMI is insurance that protects the lender in case you default on your mortgage payments. This a requirement of homeowners whose down payment is less than 20%. You can pay it as a one time fee at closing, within your monthly payment, or tied into the interest rate. PMI may have helped you purchase your home with a lower down payment, but you don’t want to be stuck with it forever.

Here’s a rundown on how you can meet your loan servicers cancellation requirements now or in the future:

Do You Have Enough Equity?

Your loan servicer needs to see that you have accumulated sufficient equity in your home (usually around 20-25%) in order to end the payments. There are two ways to accomplish this:

• Make enough payments on your mortgage so that your equity increases.
• Your home’s value has increased significantly either due to local property value increases or home improvements.

Understand the Process

The requirements for canceling your PMI depend on the terms of the loan and the loan servicer.  Some loan servicers require a minimum time, usually two years, before they approve any cancellation. Keep in mind that they will be looking to make sure that you have made all payments on time.

However, there are some basic guidelines for homes purchased after July 29, 1999 under the Homeowner’s Protection Act:

• Read over your paperwork when you took out your loan, but also write to your loan servicer asking about its cancellation procedures.

• Get your home appraised since loan servicers need to know its current market value. Don’t use your tax assessment since that may show an entirely different value. Some loan servicers will require that you use their appraisers, so double check this before hiring your own and wasting money on two appraisals.

• Calculate your “loan to value” ratio to see if it’s below 80% — divide your loan by the home’s new appraised value. For example, if your loan is $300,000 and the home was appraised at $350,000, than your ratio is 85.7% (still too high!).

• The loan servicer MUST cancel your PMI when you’ve hit a 78% ratio. This applies if the loan to value is based on the sales price of the home when you initially purchased. However, you may request removal at 80% ratio.

•If you have had the mortgage for less than 5 years and are requesting early removal of the PMI, loan servicers typically require a 75% loan to value if you are using current market value. If substantial improvements have been made to the property and have been documented, in some instances the 5 year seasoning requirement may be waived.

• If you have had the mortgage for more than 5 years, loan servicers typically require an 80% loan to value if you are using current market value.

Don’t Give Up

Loan servicers really have no incentive to spend time reviewing your file and canceling your PMI. There’s really no benefit for them so don’t be surprised if it’s a slow process.

To protect yourself with a paper trail, make your requests in writing (save your copies!).  If the loan servicer refuses or takes months, write polite but firm letters asking for action.

Help Your Case

There are ways to improve your chances of having your loan servicer cancel your PMI or to quicken the process.

• Pay your mortgage payments on time since loan servicers will consider this when you reach 20% equity. You want to be a good, reliable customer in their eyes.

• Maintain the value of your home with regular upkeep and maintenance so your assessment is less likely to show a decrease in value.

If you have any questions or want help, please reach out to me!