How You can Rid Yourself of Private Mortgage Insurance
Q. We purchased our home for $210,000 with a 5% down payment. Our lender required Private Mortgage Insurance on our loan because we did not have a 20% equity position. Now the value of our home is $300,000 and we only owe $207,000, can we get rid of the monthly PMI charge? We could save about $1200 per year. Please help.
Answer: First, congratulations on your real estate investment. Yes, it sounds as if you can get rid of the PMI and save $1200 a year. But, as I am sure you expected, there are a few hoops to jump through. Given the money you will save, I would encourage you to contact your lender as soon as possible, and find out specifics about your loan. Thank you for your question.
General Outline for Erasing PMI: The Homeowners Protection Act of 1998 requires lenders to automatically cancel coverage, if you ask for it and if the following criteria is met:
1. One provision is that your loan balance is paid down to 78% – 80% of the value of your home.
2. Your loan must be at least 2 years old. If not, it doesn’t matter how much equity you have. The exception is if you made a signficant improvement to the property (adding on; finishing out a basement, etc.), you may be exempt from the 2 year ban.
3. Your payments must be current.
4. Make sure you have enough equity. You can spend $25 for an automated valuation that will give you a ballpark price range for your property. If it looks like you have 20-22% equity, call your lender and proceed with the full appraisal. Caution: Do not order an appraisal yourself ($300-$350). Your lender will require that they place the order on your behalf.
5. Even though the lender must cancel the PMI if you meet the criteria, “surprisingly”, you will have to be the one to initiate the request to cancel.
6. For more information, check out www.privateemi.com. The site outlines the most hassel-free way to get the ball rolling. It also includes some sample letters that you can use to get the cancelation process in motion.
Please address any questions or comments about your home to firstname.lastname@example.org