Posts Tagged: ‘PMI’

Removing Mortgage Insurance

July 29, 2014 Posted by Andre Hemmersbach

If you secured a home loan with less than a 20 percent down payment, chances are your lender required you to purchase mortgage insurance (MI) to cover its exposure in case you default.

Once your equity position in the home reaches 20 percent however, you can in some cases, petition the lender to remove the MI. If you have an FHA-insured loan, premium payments to the government are required for a minimum of 5 years and the loan balance must be lower than 78% based on the original sales price of the property. FHA loans after June of 2013 are required to have MI for the life of the loan barring some limited exceptions.

Know your rights
By law, your lender must tell you at closing how many years and months it will take you to pay down your loan sufficiently to cancel the MI.

Most home buyers ask that MI be canceled once they pay their loan balance down to 80 percent of the home’s original appraised value. When the balance drop to 78 percent, their mortgage servicer is required to cancel mortgage insurance for them. Mortgage servicers also must give borrowers an annual statement that shows who to call for information about canceling MI.

The law does allow lenders to require MI of a high-risk borrower until the balance shrinks to 50 percent of the home’s value. You may fall into this high-risk category if you have missed mortgage payments, so make sure your payments are up to date before asking your lender to drop the MI. Lenders may require a higher equity percentage if the property has been converted to rental use.

With equity of 20 percent or greater, you have a good case to rid yourself of mortgage insurance. If you can’t persuade your lender to drop the MI, consider refinancing. If your home value has increased enough, the new lender won’t require MI. Make sure, however, that your refinance costs don’t exceed the money you save by eliminating MI.
Here are steps you can take to get out from under mortgage insurance even sooner or strengthen your negotiating position:
•Get a new appraisal: Some lenders will consider a new appraisal instead of the original sales price or appraised value when deciding if you meet the 20 percent equity threshold. The cost of an appraisal generally runs from $300 to $500.
•Prepay on your loan: Even $50 a month can mean a dramatic drop in your loan balance over time.
•Remodel: Add a room or a pool to increase your home’s market value. Then ask the lender to recalculate your loan-to-value ratio using the new value figure.

I would be happy to help review your options.

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What is mortgage insurance?

June 5, 2010 Posted by Andre Hemmersbach

I Want To Know How To Remove MI

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