My Favorite Lender, Troy Weatherly at Essex Mortgage has provided some valuable information on how to get rid of your Prive Mortgage Insurance.
Troy is who I recommend if you’re thinking of buying or refinancing. 702-425-4456 or Email him at [email protected]
PMI, or private mortgage insurance, is put in place when a borrower has a loan-to-value ratio that is higher than 80% of the price of the home they are purchasing. For example, a person buying a 400k home and putting 20k down would have a loan amount of 380k (380/400 =95% loan to value).
To remove PMI a borrower has a few options.
The first option is to do nothing. PMI is scheduled to automatically terminate when the mortgage balance relative to the original value of the home reaches 78%. To use the example above, 78% of the original price of the home (400k) is 312k. When the borrower’s loan balance reaches 312k the lender is required to automatically terminate the policy. A borrower can prematurely pay the balance down faster than the scheduled timeline to achieve this result faster.
The next option is for the borrower to request cancellation. Cancellation of the policy can be based on the original value of the home OR on the current value of the home.
When basing the cancellation on the original value of the home (400k using the same example), the borrower can request the PMI to be canceled when their balance reaches 80% or 320k. The borrower must have a good payment history (this is typically defined as no 30-day late within the 12 months prior to the cancellation request date). The borrower must also be current on their payments, and many lenders require that there is evidence that the value of the property has not declined below the original value and is not subject to any subordinate liens (e.g., a down payment assistance grant or second loan used to purchase).
When basing the cancellation on the current value of the home, most lenders follow what Fannie Mae and Freddie Mac typically require. The loan must be seasoned for two years, the borrower has an acceptable payment history, and one of the following be met:
- The loan to value based on the current appraisal be 75% or lower if it has been less than 5 years since the loan closed
- The loan to value based on the current appraisal be 80% or less if it has been more than 5 years since the loan closed initially.
For example – if it has been between 2 and 5 years and the loan balance is 368k (92% loan to value), the home’s appraised value would need to be $490,666 or greater. If it has been more than 5 years and the balance is 343k (85% loan to value), the home’s appraised value would need to be $428,750 or greater.
When a borrower tries to cancel the PMI prior to the automatic termination date the lender will typically make them request this in writing and provide evidence of the current value. Typically, this is done by calling the servicing number and requesting to speak to someone in the PMI department (most servicers have this option). Someone in that department will then let the borrower know what form to fill out and may even schedule an appraisal to be done on the home. Each servicer and lender is different so it is best for the borrower to start the process by calling first and finding out specifically what will be required.
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The information contained, and the opinions expressed, in this article are not intended to be construed as investment advice. Very Vintage Vegas does not guarantee or warrant the accuracy or completeness of the information or opinions contained herein. Nothing herein should be construed as investment advice. You should always conduct your own research and due diligence and obtain professional advice before making any investment decision. Very Vintage Vegas, will not be liable for any loss or damage caused by your reliance on the information or opinions contained herein.