How To Get Rid Of Private Mortgage Insurance In 3 Steps

How To Get Rid Of Private Mortgage Insurance In 3 Steps

Knowing how to get rid of private mortgage insurance can be confusing if you’re brand new to the world of mortgage fees. If you’re like most Utahns you deal with all types of fees on a monthly basis for all types of expenditures. Some of those fees may not be so necessary at all though. In particular, private mortgage insurance (or PMI.)

If you’re like millions of other Americans, the down payment you placed on your home was probably less than 20 percent. After all, the less initial cost you have to pay, the more convenient and affordable for you at closing.

Except… not always. PMI is automatically tacked on by lenders on mortgages greater than 80 percent as insurance. It allows them coverage on any remaining balance left over from the sale of your home in the event of foreclosure. And that monthly cost can be anywhere from 0.5 all the way up to 3 percent of the loan, depending on both your credit as well as the loan-to-value ratio of your home. On a $240,000 mortgage at 3 percent PMI on a home value of $250,000, a borrower even with very good credit might expect to pay an additional $175 monthly.

In other words, an extra $2,100 annually—just in PMI alone (to calculate your own PMI, please click here.)

That’s the bad news. The good news? You don’t always have to pay.

There are ways of eliminating PMI entirely which can help save you thousands of dollars a year, thanks to the 1998 Federal Housing Administration Act. Legally. Efficiently. And above all, conveniently.

How To Get Rid Of Private Mortgage Insurance

For Conventional Loans
Under certain circumstances, federal law provides rights for homeowners to remove PMI contingent on eligibility. If you reduce your mortgage to 78 percent, PMI is automatically waived due to federal law. If you’re unable to reduce your mortgage to 80 percent or less, unfortunately you are stuck with the monthly premium. But there are creative ways to refinance that you may want to take into consideration.

For FHA Loans
You can remove PMI after 11 years if you put more than 10% down. The FHA no longer allows borrowers to cancel FHA MIP after the LTV has reached 78%. You can still avoid paying mortgage insurance after you have paid down your loan-to-value to 80% or less, such as refinancing your FHA loan to a conventional loan.

Traditional Refinancing Loans

By refinancing your mortgage, you may to able to remove PMI by requesting cancellation (see below) only if your new mortgage is for 80 percent or less of the home’s current appraised value. And if you suspect your property value has increased, it’s very much worth your time seeking a current appraisal.

Keep in mind that appraisers don’t come cheap, however. Utah tends to follow national trends, which means you may find yourself paying upwards of $300.  But if you’ve already spent some time on refurbishing your home, and you suspect nearby property values have been on a steady incline, you may find it an option worth looking into (and you may find your lender requesting an appraisal as proof your home’s value hasn’t decreased if you request cancellation.)

Keep in mind that most loans have a “seasoning requirement” that requires you to wait at least two years before you can request refinancing. Review the requirement with your lender prior to requesting.

Piggyback Loans

An 80/10/10, or “piggyback” loan, is a type of loan which allows you to reduce the initial down payment to only 10 percent, while financing the remaining 10 percent through a home equity line of credit. You’re still borrowing 90 percent, but the cost of the main mortgage is now at 80 percent. And while this will frequently necessitate a higher interest rate, it’s typically adjustable on certain conditions:

  • You must have a good payment history
  • You must be current on your payments
  • There must be no current liens against your property

Keep in mind that piggyback loans must be subject to approval from a lender; and if you’ve already refinanced your mortgage, you may find they’ll be far from eager to accept additional restructuring options.

Request PMI Cancellation

As mentioned previously, lenders automatically cancel PMI when your principal balance is reduced to 78 percent. Legally, however, they must cancel it if you’re able to reach 80 percent upon written request and approval. However, certain provisions may apply:

  • You must have a good payment history
  • You must be current on your payments
  • Your lender may require you to certify that there is no second mortgage on your home
  • There must be no liens against your property
  • Your lender may require you to provide an appraisal indicating the value of your property hasn’t declined. They may choose to reject the cancellation request altogether in instances of decreased value.

Please note that the federal right to request PMI cancellation does not automatically apply to either Federal Housing Authority or Department of Veterans Affair backed loans. But you may be able to find alternative refinancing options by speaking to your lender.

Just How Necessary Is Private Mortgage Insurance in Utah?

Unfortunately, for most Utah homeowners… it’s a necessary one. Whether you chose a high interest mortgage out of convenience or it was the only option available to you, until the balance of your mortgage reaches 78 – 8 percent, it’s just one more monthly fee.

If you are in a situation where you no longer want to deal with and pay PMI every month, let’s talk. We can discuss your situation and even look into giving you a fair cash offer on your house.

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