What is the best way to remove Private Mortgage Insurance (PMI) from my loan?
We get this question quite often. And sometimes this comes even before someone buys a home. The bottom line is that Private Mortgage Insurance doesn’t cover you the homeowner. It covers the lender if you default. We all hope we are not going to have a mortgage foreclose or go to short sale. If it does and you have mortgage insurance, the lender is covered for your default. It makes sense that the more equity you have in a property, the less likely you are to default. Thus, if you have 20% or more to put down, you do not need to worry about mortgage insurance.
But if you are like 80% of the people who own their first home, chances are pretty great that you have a mortgage that you currently pay from $50 to over $200 a month in private mortgage insurance. If that is the case, you might want to do some homework to see if you can get rid of that insurance.
The most common recommendation, or at least the one you hear the paid advertisements for, are to refinance your entire mortgage to get rid of your mortgage insurance. This is always an option to look at. But beware that many times you are adding the costs in to the initial loan as well as extending the term back out to 30 years. The overall cost of this is huge! If you do look at refinancing, always check into a 15-year mortgage option. It is awesome how much quicker you pay down a mortgage when you shorten the time in half.
Personally, the first thing I would do is to see if I could get the mortgage insurance premium dropped off my loan. Here are a few things you should know and understand:
Calculate what your current Loan-to-Value (LTV) is:
Current Mortgage Balance $____________________ =
Divided by Current Value $ LTV
Example Mortgage $150,000 = 75%
Example Value $200,000 LTV
• To get rid of your mortgage insurance you will need to be 78%-80% or < LTV.
• If your original loan was:
If your FHA Case number was assigned on or after June 3, 2013, you can never get the mortgage insurance dropped. In this case, you might want to look at refinancing your mortgage to a 15-year Conventional mortgage.
If your FHA Case number was assigned on or before June 2, 2013, you can request that the mortgage insurance be removed. Most lenders will require to see proof of 5 years of on time payments, as well as an LTV < 80%.
If your original loan was conventional, then you can request that your mortgage insurance be removed after having a two-year payment history. Here is what most lenders will want to see:
• You still occupy the property
• 2-5 years of on time payments LTV < 78%
• Over 5 years of on time payments LTV < 80%
Many mortgage companies will require that you prepay the cost of an appraisal to determine current market value. If you are interested in finding out what your home is worth in our competitive market, give us a call. We can get you in touch with a trusted, local Real Estate Professional.
As with many things around the world of mortgage financing, it is good to do a little homework to see what your options are and what the cost and payoff would be. If you have questions about dropping your mortgage insurance and you don’t have a trusted, local mortgage professional, give Home Team Lending a call. We can help explain it.Leave a reply →