Removing
PMI Insurance.
When you purchase a home and put down less than 20% you will be required
to pay Private Mortgage Insurance (PMI). If you are a high risk buyer, you
may be required have PMI until you have a 50% equity position. This is a
monthly fee paid to protect the lenders interest in the property in the
event you default on your loan. Is it possible to remove it from your loan?
The answer is probably. You will need to check your loan documentation
and/or call the company to find out what is required for removing PMI.
To determine if you have enough equity, take the value x .80
(80 percent). If your loan balance is at 80% or lower, you should be fine.
If not, you'll have to wait until the value increases or the loan balance
decreases. You can increase the value by making property improvements such
as installing new kitchen cabinets, finishing a basement or adding on a
room. Once your home has increased in value and you have 20% equity, you
will need to make a formal written request to have the PMI removed.
How will I know if the value has gone up enough?
You could go out and get an appraisal but I don't suggest that
initially. Most appraisal companies will charge between $200-$400. First,
you should call a local real estate agent. Tell them that you would like to
get a competitive market analysis of your property. You might also mention
the reason you are doing this is to remove PMI. Don't feel uncomfortable
about making the call; most real estate agents would be happy to provide
this service to you. If you use their service and plan on selling your home
down the road, give the agent the opportunity to see what they can do to
sell your home.
My lender won't remove my PMI.
Depending on your loan documentation or if the lender is being
difficult, you might not be able to remove it. You can always refinance your
home to remove PMI, but with a new refinance you will incur all the costs of
refinancing which could add up to a few thousand dollars. Analyze the costs
of refinancing versus the elimination of the PMI to determine if it will be
beneficial to you.
I have an FHA loan, can I remove the mortgage insurance?
Sorry, with an FHA (government insured) loan, you will be required to make
those payments for the life of the loan.
