PMI, the acronym for private mortgage insurance, allows individuals to purchase their home with less than a 20% down payment. If you are paying PMI, the question you need to ask yourself is; “Is it time to stop paying monthly PMI into an escrow account and instead start putting that money into your pocket?”
If you purchased your home with conventional financing and put less than 20% down, it’s likely you’re paying PMI. Private mortgage insurance protects the lender or investor against loss if a borrower stops making payments. Often, homeowners mistakenly pay this insurance years after it’s no longer needed and as a result end up paying thousands in useless insurance premiums. Here’s the good news that many homeowners don’t realize – Once you’ve reached 20% equity in your home by appreciation, improvements made to the home or by paying down the principal balance of the mortgage (or any combination of the three), you can force the lender to cancel the private mortgage insurance. All you have to do is request in writing that the private mortgage insurance be canceled (most lenders have a brief form which must be filled out) and provide the lender with proof of sufficient equity over 20%.
In most cases, the necessary proof is a state certified appraisal. Recent legislation (Homeowners Protection Act) requires servicing lenders to make homeowners aware of the existence of any PMI they might be paying for and the requirements necessary to have it cancelled. Fortunately, you don’t have to wait for the lender’s notification to rid yourself of PMI. In most cases, if you have equity of 20% or more you’ll be able to cancel it almost immediately.
After a homeowner has built up 20% equity for a single family owner occupied residence (a few banks may require as much as 25% equity – check your loan documents to ascertain what applies in your situation) in the home. They may begin to initiate steps towards canceling the mortgage insurance. The first step is to contact the lending institution to where you send your mortgage payments (loan servicer). This may or may not be the lender who gave you the loan originally. Your loan servicer will be able to help you with the cancellation procedure and will also be able to tell you exactly how much your remaining mortgage balance is. Every loan servicing institution can have different policies regarding this procedure. Ask your servicing lender to provide in writing their specific requirements to cancel PMI insurance.
Keep in mind, it’s the servicer’s ultimate decision and they’ll take many factors into consideration including the borrower’s payment history over the life of the loan before allowing you to drop this insurance. This factor alone could alter the servicer’s decision. Although mortgage insurance may have allowed you to purchase a home, there will come a time when this added monthly expense will no longer directly benefit you. Therefore, it’s in your best interest to keep the provisions surrounding it’s cancellation in mind because no one is going to cancel it for you.
You are, ultimately, your own financial advisor, and even the smallest expenses should be eliminated if at all possible. By continuing to carry PMI which is no longer required, nor needed only decreases the amount of money you have available in your pocket or your bank account.
Most lenders require a real estate appraisal by a state certified appraiser as the primary proof required to eliminate unnecessary PMI insurance. At the ‘Rowe Appraisal Group’, we specialize in helping people just like you eliminate the unnecessary and/or unwanted PMI insurance when feasible.
We offer a free initial consultation and will help you to determine if you have sufficient equity in your home to enable you to cancel your PMI. Give us a call today with any questions you might have.