Nov 15, 2023
Most people with private mortgage insurance want to know how to get rid of it. And for good reason: PMI tacks on a substantial extra fee to your already massive mortgage payments. Lenders traditionally require PMI for borrowers who put down less than 20% on a house. Of course, it’s a godsend if you couldn’t afford a home otherwise. But once you have PMI, is there any way to let it go?
For starters, let’s get one thing straight: “Mortgage insurance is neither good nor bad,” says Michael Brown, branch manager for Churchill Mortgage in Nashville, TN. “It can help people become homeowners who would not otherwise qualify because they don’t have 20% to put down. But in the long run, the removal of mortgage insurance could save home buyers hundreds if not thousands of dollars per year, depending on their loan size.”
PMI ranges in price from about 0.3% to 1.15% of your home loan (the worse your credit score, the higher the percentage). On a $300,000 house, that’s an extra $900 to $4,500 you’ll pay per year. So, it’s understandable homeowners will want to learn how to purge this fee as soon as possible.
What is LTV?
To understand how to get rid of PMI, you’ll first need to wrap your head around the concept of a home’s loan-to-value ratio—which compares the amount of money you borrowed to your home’s value.
To calculate your LTV, divide your loan amount by the value of your home. For example, if you borrow $135,000 for a house valued at $150,000, your LTV would be 0.9, or 90%.
Your LTV changes over time, and once it reaches 80% or lower, paying PMI is no longer a requirement.
How to get rid of PMI
There are two main ways to get rid of PMI, each with its own pros and cons. The most obvious is just to keep chipping away at paying your mortgage. It may take several years, but you will get there in due time without stressing your finances too much. Making extra mortgage payments will help you get there sooner, too.
Another way to get rid of PMI is to make home improvements, such as adding a bathroom or renovating a kitchen. From there, you wait one year, then get the home appraised—hopefully for a higher value that pushes your LTV to a level where you can offload PMI.
“Just make sure the upgrades you are doing add substantial value,” says Allen Shayanfekr, founder and CEO of real estate investment company Sharestates. In other words: Stick with renovation projects with a high return on investment such as adding attic insulation or a new steel front door.
And whatever you do, don’t fall into the trap of pouring too much money into renovations that could have gone toward whittling down your mortgage.
How to end PMI with your lender
Under the Homeowner’s Protection Act, your mortgage lender is legally required to cancel your PMI coverage once you pay down your mortgage to 78% of the principal, as long as you are current on your payments and do not have an FHA loan.
Once your LTV is below 80%, ask your lender to cancel your PMI, making sure to follow its guidelines. If your lender doesn’t approve your PMI cancellation in a timely manner, follow up by sending written complaints that restate your request. Send the letters by certified mail, and keep copies so that you have evidence in case you need to take court action.
Bottom line: Don’t fret if you have to pay PMI. It may be the thing you need to get your dream house, and it doesn’t have to last forever.
Source- https://www.realtor.com/advice/finance/getting-rid-of-your-private-mortgage-insurance/
