If you bought a home with less than a 20% down payment, chances are you’re paying Private Mortgage Insurance (PMI). This is a cost that your lender adds to your mortgage payment to insure their risk exposure, should you default. Depending on the amount of your mortgage, your PMI payments could be a few hundred dollars more per month. Some lenders use the 1% rule of thumb. That means you will pay 1% of the loan amount until the equity threshhold is met. If you have a $200,000 loan, your PMI could be around $200 per month.
But don’t worry; PMI is not forever unless you put less than 10% down and took out an FHA-insured loan, then you will have PMI for the life of the loan. Check with your local lender, typically will be removed once your equity position reaches 22%, meaning your loan is now 78% of your purchase price or appraised value.
“Well, how do I know that my equity has reached that magic number?”
Typically, once your Loan to Value Ratio (LTV) has reached 80% of your property’s original appraised value, your currrent mortgage service provider will allow you to have PMI removed, upon request. You have to be proactive in initiating this conversation. They will not simply remove the mortgage insurance until, by law, your LTV drops below 78%. When it does, your mortgage servicer is required to remove the insurance.
There are other situations that could prompt your lender to waive PMI. Perhaps, you made some improvements and/or renovations to your property which increased it’s value. Another scenario is an appreciation in the market. While I know the word “appreciation” has been missing from our real estate vocabulary over recent years, there are whispers of it in the air. Now could be a good time to take a shot at getting your PMI removed.
AGENTS: This presents a great opportunity for you to reconnect with former clients and possibly help them save some money.
“How do I go about showing that my equity has increased?”
First, pick up the phone and check with your lender to see if they have any special instructions for requesting PMI removal. Different lenders may have different requirements.
There are other important criteria you must meet if you want to remove PMI on your loan:
- requests must be in writing;
- the borrower must have a good payment history and be current on your payments;
- your loan servicer may require you to certify that there are no subordinate liens on your home (such as a second mortgage);
- your loan servicer may require you to ensure (i.e. an appraisal) that the value of your property hasn’t dropped below the value of the home when you bought it. If the value of your home has decreased, you may not be able to cancel PMI.
Most lenders will require a current appraisal of your property. Some will allow you to select your own appraiser; while most will require that you use an appraiser from their panel of preferred appraisers. Either way, confirm this with your lender. You don’t want to have to pay for two appraisals.
If an appraiser visits your home, be sure to share with the appraiser any improvements that you haved done to the house since you bought it. This will help give the appraiser a better understanding of where your house was relative to its current, improved condition.
The time to act is now. Every month that passes is just another month you could be saving on PMI payments. Look at it this way, if your PMI is $150 per month, that’s a savings of $1,800 per year!
If you have any questions related to PMI removal or real estate appraisal matters in the Philadelphia area please feel free to give The Coyle Group a call 215.836.5500 or visit our website www.thecoylegroupllc.com .
Special thanks to Mark K. O’Neill, Senior Loan Officer, with Mortgage Master for his assistance with providing background on PMI and fact checking. If you are unable to get PMI removed, you may want to contact Mark. He may be able to refinance your loan without PMI provided you have at least 10% equity in the home.
The Coyle Group’s team of Philadelphia appraisers is a leading provider of appraisals for Estate/Probate, Divorce, Bankruptcy, Tax Appeal and Pre-Listing appraisals. If you need a guest speaker at your next sales meeting, please give us a call. We would welcome to opportunity to speak to your group and field any appraisal related questions you may have. For more information please visit our website at www.TheCoyleGroupLLC.com You can also contact The Coyle Group at 215-836-5500 or email@example.com