Nobody likes paying private mortgage insurance. It's one of those monthly fees that feels like money is just going down the drain. It feels that way because It doesn't protect the homeowner. It is strictly for the lender in case the homeowner defaults on their payments and the bank has to foreclose.
Because of the federal "Homeowners Protection Act", which applies to people who bought their homes after July 29th, 1999, there are some rules for lenders as to when they must cancel private mortgage insurance on a loan. The act says that homeowners can ask that the PMI be canceled when they have paid down their loan balance to 80% of the original home value and that the lender must cancel PMI automatically when the homeowner has paid down the loan balance to 78% of the orignal value.
The other way that a homeowner might get their PMI canceled is by getting 20% equity through the appreciation of their home (less likely in this market, although Logan has not depreciated as much as many markets in Utah or the nation) or through home improvements.
If you feel like your home has 20% equity, whether through making payments or home appreciation, there are some steps you can take to get rid of your private mortgage insurance.
1. The first step would be to look in your original loan documents (the packet that the title company gave you) for information from your lender on the procedures for getting PMI canceled. If you can't find this, I'm sure you can call customer service of your lender to find out the procedures. Usually the first step is requesting the removal in writing. You will want to keep copies of all your correspondence in case you need to take the lender to small claims court.
2. The second step would include an appraisal if you are requesting the removal based on the appreciation of your home. Make sure to ask the lender if they have a list of appraisers to choose from. Many lenders won't accept appraisals from just any appraiser. The appraisal will cost you anywhere from $350 to $400; Not very much considering that most people in Logan, Utah would save anywhere from $500 to $1,500 per year by getting rid of the private mortgage insurance on their loan. If you aren't sure about the value of your home and you don't want to risk $400, call a Logan Utah Realtor to give you a CMA (Comparative Market Analysis) which is the next best thing to an appraisal. Most will charge you about $20. You will still have to do a full appraisal to get rid of PMI but this way you will have an idea of what your home is worth before forking out $400.
3. If you have an interest rate that is currently higher than the going rate you might consider a refinance to get rid of your PMI and to lower your interest rate. If the home has 20% equity, you won't have to have PMI on the new mortgage.
If your lender refuses to remove your PMI you should write firm but polite letters with evidence that you do indeed have the 20% equity requirement. Some lenders do have clauses in the loan documents that state PMI must remain on the loan for a minimum time period. In these cases, you are probably out of luck if you haven't been in the home long enough. Many lenders take a long time to process the requests because it just doesn't benefit them that much to get rid of your PMI. It's a sad but true reality.
If you have an FHA loan, I'm afraid you will pay mortgage insurance for a minimum of 5 years, no matter what your equity in the home might be.
Getting rid of your PMI does not have to be a long tough battle. With the right steps and if you meet the lenders guidelines for removal, it could be a stress free process. Just be patient and prepared to meet the lenders requirements.
Comments(4)