In a previous post, I talked about how applying for an FHA mortgage is one of the things you can do to avoid putting a high down payment on a home. But if you have an FHA mortgage, you know that one of the detractors is paying for private mortgage insurance (PMI) each month.
FHA loans are not the only ones that carry a PMI requirement either. If you get a conventional loan and you decide to go with a low down payment, you might also need to pay for PMI.
If you have PMI now and have been paying on your mortgage for a while, you might be wondering if there is a way you can get rid of it. After all, you have built up equity in your home, and you have been making timely payments. There is no reason for you to still be paying an extra bill each month, right? So, how can you stop paying for private mortgage insurance?
The answer depends on what type of mortgage you have. Let’s look at the possibilities for FHA and conventional loans.
If You Have an FHA Mortgage …
Technically, what you are paying with your FHA mortgage is a mortgage insurance premium (MIP), which is not identical to PMI.
How long you need to pay the MIP depends on when your loan originated. If it was prior to June 3rd, 2013, it is different than if it was after that date.
It also depends on the term of your loan as well as the down payment you made when you took out the mortgage.
In some cases, MIP may never expire on an FHA mortgage. For example, if your loan application was completed after June 3rd, 2013, and your mortgage carries a term of 20, 25 or 30 years, and you put down less than 10%, the MIP will last until the mortgage is paid off.
But if your loan application was completed before June 3rd, 2013, and your mortgage carries a term of 20, 25 or 30 years, and you put down less than 10%, the MIP is cancelled at 78% LTV following a 5 year minimum.
For other loan terms and down payment amounts, there are different rules.
So, if your mortgage insurance will cancel after a certain period of time has elapsed and you have the required equity, then you can consider waiting until that period passes.
But if you do not want to wait and/or the insurance is permanent, you could instead consider refinancing to a conventional mortgage which does not require you to pay for PMI. If you have 20% or more equity in your home, this may be easy.
If You Have a Conventional Mortgage …
If you put down less than 20% on your home when you took out your mortgage, then you may be paying for PMI right now. If you want to dump it, you can do so once you have accumulated the required 20% equity.
Technically, a lender can still say “no” at this point. But once you hit 78% LTV, the lender has no choice. The PMI automatically is cancelled.
If you want to get rid of PMI sooner than that, you might have some options.
You can try remodeling your home or getting a second appraisal. This can lead to a recalculation which could go in your favor and help you meet the equity requirement to drop the PMI.
Equity Isn’t Everything
While equity is the main factor in determining if you can get rid of your PMI, there are some other requirements you need to meet as well.
For starters, you must be up-to-date on your mortgage. For another thing, there cannot be a lien against your property. Further, you cannot make a verbal request. You must put it in writing.
If the lender refuses to get rid of the PMI when you request it (and if they are not legally required to because you are not yet at 78% LTV), you also have the option of refinancing your conventional mortgage to try and drop the requirement.
Want to Get Rid of PMI? I Can Help!
If you are tired of paying PMI or MIP in Los Angeles or elsewhere in CA, I would love to review your situation with you to see if there is a way you can drop your PMI by refinancing. To schedule your consultation, please give me a call at (818) 601-2231. Let’s start saving you money every month!
