One factor that increases monthly payments in a mortgage is Private Mortgage Insurance (PMI). You’ll find that about 40% of purchase mortgage loans and about 10% of refinance mortgage loans have PMI included. There is an option to remove it, as long as you adhere to a few specific requirements. These requirements may have variations depending on where you source your loan from.
For Traditional Loans
PMI is automatically included in conventional loans if you make a low down payment (less than 20%). In order to request the PMI to be removed prior to paying down the balance of the loan to 78% of the value at the time of the original mortgage loan, you will need to meet the below requirements:
The servicer must only terminate mortgage insurance based on the borrower’s written or verbal request based on current property value.
For all scenarios, you have to be current on the payments and cannot have a 30 day mortgage late in the past 12 months or a 60 day mortgage late in the past 24 months.
Primary/Second Home One Unit
-Loan is at 75% of value or less, then you need to have been in the loan for at least two years
-Loan is at 80% of value or less, then you need to have been in the loan for at least five years
Primary Two to Four Unit or Investment One to Four Unit
-Loan is at 70% of value or less and you need to have been in the loan for at least two years
FHA Loans
FHA loans usually have permanent monthly mortgage insurance for the life of the loan if you are above 95% of value, and if below 95% of value the monthly mortgage insurance has to remain on the loan for at least 11 years. It is typically more expensive than the mortgage insurance for conventional loans.
Other Options
Lenders have measures in place that may lead to a cancellation of the PMI. Both Fannie Mae and Freddie Mac have additional guidelines beyond the Homeowners Protection Act. Often, homeowners have the PMI automatically removed if they’ve paid around 78% of their home’s value at the time they acquired the original mortgage loan. Other than that, you’ll have to make inquiries and see if there’s a possibility for cancellation.
Another option is to pursue refinancing. A refinancing method pays your old loan, replaced by one with more favorable terms. However, you must weigh this option carefully. As you would need credit and income to qualify again and there are some costs to refinance. RoBUS Mortgage can usually keep your refinance costs very low and they are usually financed into the new loan though.
Refinancing works very well if your home has increased in value significantly since your initial mortgage. You can refinance and then have a new plan that no longer has a PMI. You must also possess more than 20% of the home’s equity.Refinancing options will also depend on the conditions set by the lender.
Options Are Available
PMI isn’t something you need to endure for the mortgage’s duration. Even a refinance can be an option for you if the usual cancellation methods don’t pan out. The extra cost you remove can ease financial strain and give you more purchasing power.
Robus Mortgage offers various loan services to help with PMI removal. Contact us today to get a free quote.