Removing Private Mortgage
PMI (Private Mortgage Insurance), is
generally required by the lender when a purchaser elects to buy a home with a down payment
of less than 20%.
The Homeowners Insurance
Protection Act, signed into law and effective on July 29, 1999, requires
lenders to automatically cancel private mortgage insurance (PMI) when a
borrower's home equity reaches 22%. Please
note, however, that a majority of lenders will cancel PMI when the
borrower’s equity reaches a slightly lower figure of 20%.
Also, note that the legislation does not affect investors and has an
exemption for HUD-insured (FHA) loans.
PMI can add hundreds of
dollars a year to a mortgage payment and they are not tax deductible.
Fortunately, the recent rise in property values in Northern Virginia,
coupled with the contributions to equity that you have made with your monthly
mortgage payment, may present your 1st possible opportunity to eliminate the
PMI portion of your payment.
The possible ways one may have achieved
enough equity in their home to qualify for a PMI free mortgage are:
- Owner has paid enough to reduce the
principal mortgage balance below the 80% Loan-To-Value (LTV)
- The home has appreciated sufficiently
enough so that the mortgage balance is 80% or less LTV.
- Owner has upgraded the home so that the
new appraised value will equal at least 20% of the current market value.
Upgrades include making significant improvements such as adding decks,
patios, finishing basements, updating kitchen and baths, replacing roofs
or furnaces, or making other additions to the home or real property.
Improvements that are typically not considered upgrades include window
treatments or personalized decorating.
- Finally, any combination of the above.
The lender typically
will require proof of the value of your home in order to have the PMI
cancelled. Generally they require
completion of the URAR (Uniform Residential Appraisal Report, also known as
Fannie Mae Form 1004) by a state licensed/certified appraiser.
If you, the homeowner, believes that the
above criteria has been met, your next step is to contact the current lender
requesting information on the requirements to remove the PMI coverage. The
most common conditions are, but not limited to, the following:
- A minimum period of time has elapsed
since the loan closed. This may vary from as few as 6 months to more than
2 years, depending on the investor.
- The loan is current with no history of
- A new independent appraisal performed by
a lender approved appraiser. The homeowner will be required to pay the
appraisal fee that is quoted on an individual basis by the appraisal
- The loan balance must be below 65% to 80%
of the current property value.
Once your home value or equity has reached 20%
of the loan amount (this may vary depending upon your LTV - Loan To Value), this
monthly mortgage insurance premium can be canceled which will provide more $ for
the monthly budget.
At Hicks Real Estate
Services, Inc., we can evaluate the possibility of elimination of your PMI and
provide the appraisal services that your lender will most likely require.