I get this question a lot; When can I stop paying PMI?
Assuming that by "PMI" you mean Private Mortgage Insurance as opposed to the mortgage insurance required on FHA loans, the process is simple. You simply have to demonstrate to the lender that your loan is 80% of your home's value or less. Lenders have a variety of requirements for this proof. Some accept a computerized value assessment, called an Automated Valuation Model (AVM). Think Zillow on steroids. An AVM typically costs about $20.00. Other lenders require an appraisal with an exterior-only inspection, called a "drive-by" appraisal. This costs about $350.00. Some lenders require a full appraisal, which costs about $500.00.If you believe your property has appreciated enough—and a quick "Zestimate" from Zillow will give you a rough idea—you should contact your lender. Your monthly statement will give you the customer service number. They will tell you their requirements. You will have to pay for the appraisal ahead of time. It's important to check the value of your home at least annually so you know when you can remove our PMI or refinance to remove it.
One more very important fact while you are checking the value is to do a mortgage loan analysis on your current loan and check current mortgage rates, maybe it makes more sense to refinance, reduce your rate and remove your PMI.
Some lenders won't consider removing PMI until you have had the loan for at least 12 months. Lenders also require that your loan is in good standing, with no late payments for the last 12 months.
Private Mortgage insurance drops off automatically once the loan-to-value ratio (LTV) drops to 78% of the original value. For a 30 year mortgage, this occurs in around 10 years.
FHA mortgage insurance works differently. For loans originated between January 1, 2000, and June 3, 2013, mortgage insurance would drop off once the loan balance fell to 78% of the original purchase price, but no sooner than 5 years. This meant that a borrower with an FHA loan could make a payment after 5 years to reduce the loan balance to 78%. For a starting balance of $300,000, that would mean a principal payment of $37,000 at year 5.
After June 3, 2013, borrowers will have to refinance into a conventional loan to drop the mortgage insurance, since FHA MI now remains with the loan for its entire term. In this case refinancing into a conventional loan once you have 80% loan to value, providing a new loan without any MI required.
I hope this has been insightful.. please let me know if you have any questions. I welcome your questions and comments.
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Roxy Redenbaugh, Broker
Sr Mortgage Consultant
Residential and Commercial
The Greatest Compliment I Can Receive Is A Referral From Friends, Family, and Business Associates,
NMLS#269926 Company NMLS#1930219
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