How And When Private Mortgage Insurance (PMI) Maybe Canceled

By
Mortgage and Lending with George Souto NMLS #65149 FHA, CHFA, VA Mortgages NMLS #65149

As I stated in my blog on Monday titled "What The Homeowner Protection Act Is, And How Does It Affect You?"  I would be posting a more detailed blogs on how both Private Mortgage Insurance (PMI), and the FHA Monthly Insurance Premium (MIP) can be canceled, and when.  This blog will be How And When Private Mortgage Insurance (PMI) Maybe Canceled.  My next blog will address how and when FHA Monthly Insurance Premium (MIP) maybe be canceled after the FHA MIP changes in June 3, 2013.

PMI is required on Fannie Mae and Freddie Mac backed mortgages that have a Loan-To-Value (LTV) that is greater than 80%.  In other words, if the Borrower has less than a 20% downpayment, PMI will be required on the mortgage.

The Borrower can however, request for the PMI to be canceled/eliminated once one of the following three things happen:

  • The principle balance on the mortgage reaches 78% the PMI will automatically be canceled by the Lender.
  • The principle balance on the mortgage has reached 80% of the purchase price of the property, or beginning loan amount if the present mortgage was a refinance, the Borrower can request for the Lender to cancel the PMI
  • The Borrower believes they have 20% equity in the property (80% LTV) and requests for the Lender to do a new appraisal on the property (paid by the Borrower).  If the new appraisal shows the LTV is now 80% or less of the purchase price, or beginning loan amount if the present mortgage was a refinance, the Lender may cancel the PMI.  The 20% equity can be reached by:
    • The principle balance on the mortgage has been paid down to 80%
    • Home prices have gone up to the point there is now 20% equity in the property.
    • The Borrower reaches 80% LTV through a combination of paying down the principle balance of the mortgage and the value of the property increasing.

These are the guidelines for How And When Private Mortgage Insurance (PMI) Maybe Canceled.  However, Lenders may require the Borrower to pay PMI two or more years even if the Borrower meets the above requirements before two years.  Borrowers should inquire whether the Lender has a minimum time requirement before spending money on a new appraisal.

 

 

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 Info about the author:

George Souto NMLS# 65149 is a Loan Originator who can assist you with all your #FHA, #CHFA, and #Conventional #mortgage needs in Connecticut. George resides in Middlesex County which includes #Middletown, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com

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Re-Blogged 1 time:

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  1. Joni Bailey 06/06/2014 04:54 AM
Topic:
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Joni Bailey
Berkshire Hathaway Home Services - Anderson Properties - Huntsville, TX
Your Huntsville / Lake Livingston Area REALTOR®

Thanks, George! I am heading over to read the other post right now!! :) Then I will share!

Jun 03, 2014 10:32 PM #1
Rainmaker
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Maria Gilda Racelis
Home Buyers Realty, LLC-Manchester, Bolton. Vernon,Ellington - Manchester, CT
Home Ownership is w/in Reach. We Make it Happen!

Hi George: I thought that the lender will not cancel PMI unless the borrower request for cancellation even if it reached 78% LTV. Can you clarify this please?

Thank you. And once clarified, I will reblog:)

Jun 03, 2014 10:51 PM #2
Rainmaker
673,085
Ed & Tracy Oliva
West USA Realty - Arizona - Fountain Hills, AZ
The Oliva Team Arizona Agents

Good Morning and this is some good Info for all in the market!! keep up the good work and good luck with your business,  E

Jun 03, 2014 11:10 PM #3
Rainmaker
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Randy Mitchelson, APR
iPartnerMedia.com #goipm & Homeland Heroes Home Loans - Estero, FL
First Impressions are made at First Click

I'm curious about Maria's question too.

How does a lender really know without doing an appraisal? I don't see lenders taking that initiative. Also, are borrowers who overpay into the PMI fund eleiglble for rebate if their lender was not prudent in eliminating it in timely fashion?

Jun 03, 2014 11:23 PM #4
Rainmaker
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Bill Roberts
Brooks and Dunphy Real Estate - Oceanside, CA
"Baby Boomer" Retirement Planner

George, I think that the issue of PMI is a good opportunity to re-fi into a 15 year loan with the same payment as the old 30 year plus PMI. No begging the mortgage company. A definite win for the borrower.

Bill Roberts

Jun 03, 2014 11:23 PM #5
Rainmaker
756,087
David Popoff
DMK Real Estate - Darien, CT
Realtor®,SRS, Green ~ Fairfield County, Ct

Great information here George, off to the first post ~ Thanks

Jun 03, 2014 11:40 PM #6
Rainmaker
3,086,591
Joan Cox
Metro Brokers - House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

George, I actually had a homeowner request their PMI be removed, and the bank told them THEY had not paid it down 20% and needed to wait.   I thought that was terrible, and told them they could refinance through a different company.

Jun 03, 2014 11:59 PM #7
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Joni thank you

Maria the Lender should cancel the PMI automatically if the LTV has be reduced down to 78% by paying the principle balance to 78%. No appraisal is needed in that case because they know what the property sold for and what the principle balance is now.  Where an appraisal is needed is iff the homeowner is trying to prove they are at 78% because the property has increased in value and now they have more equity.

Ed and Tracy glad you found the information useful

Randy please read my response to Maria.  As far as a refund on the PMI, I am not positive of how that works, but if a borrower was not proactive in contacting the Lender to request an appraisal if they feel the property value has gone up to the point they can cancel the PMI, I doubt any amount would be refunded, but like I said I am not positive of that.

Bill,  if the borrower has had the loan to the point they have reduced the principle balance close to 80% then yes it may be worth considering refinancing and reducing the term to 15 years.  But like I responded to you in the last blog if they have not reduced the principle balance, but think they equity is at a point the PMI can be canceled, then it is worth the hassle and begging.  The reason I feel that way is with the refinance you have all the Closing Costs again which can be substantial, the term of the loan begins all over again unless refinancing into a lower term loan which will increase the monthly payment if they have only had the loan fro a short time.  The future the rate will most likely be higher as well for those who have purchased in the last couple of years.  So if at all possible it is better to try to eliminate the PMI by reducing the principle balance and/or through a higher LTV in my opinion.

David thank you. 

Joan the bank would be right if they did not pay down the principle balance and the equity had not gone up.  But if they equity had gone up, the bank can not refuse to do a new appraisal at the homeowners cost, and if the  LTV of the new appraised amount is 78%, the bank should eliminate the PMI.  If they are at 78% LTV and the bank refuses to eliminate the PMI, I would have them file a complaint with the State Banking Commission, and watch how fast that PMI comes off. 

Jun 04, 2014 12:43 AM #8
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Dick Greenberg
New Paradigm Partners LLC - Fort Collins, CO
Northern Colorado Residential Real Estate

Hi George - Thanks for the informative post. We have had a couple of clients who have experienced difficulty with their banks getting PMI cancelled, even with appraisals that showed sufficient equity. I think it really depends on the bank - some of them seem very hard to deal with on this issue.

Jun 04, 2014 01:02 AM #9
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George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Dick I think your past buyer will get a different response from the bank if they tell them they are going to file a complaint with the State Banking Commission and the CFPB.  You will mostly see them responding back quickly with a different response.

Jun 04, 2014 01:30 AM #10
Rainmaker
2,066,578
Anita Clark
ColdwellBanker SSK Realtors ~ 478.960.8055 - Warner Robins, GA
Realtor - Homes for Sale in Warner Robins GA

George: This is very useful information on how/when PMI can get cancelled. Thanks so much for sharing your knowledge with us!

Jun 04, 2014 08:38 AM #11
Rainmaker
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Nick T Pappas
Assoc. Broker/Broker ABR, CRS, SFR, e-Pro, @Homes Realty Group, Huntsville AL - Huntsville, AL
Madison & Huntsville Alabama Real Estate Resource

George, that 78% LTV that you mentioned is what I'm familiar with...automatic.  Of course, 80% if the buyer requests an appraisal and it appraises.  This really is great information to clear up questions of PMI.  Looking for to hearing what you have to say about FHA monthly insurance premiums.

Jun 04, 2014 08:42 AM #12
Rainmaker
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Joe Petrowsky
Mortgage Consultant, Right Trac Financial Group, Inc. NMLS # 2709 - Manchester, CT
Your Mortgage Consultant for Life

Good morning George. Excellent post as usual. MI is truly a crazy topic, in many cases we need to refinance folks to get them out from under this monthly obligation.

Jun 04, 2014 09:33 PM #13
Rainmaker
919,027
Susan Haughton
Long and Foster REALTORS (703) 470-4545 - Alexandria, VA
Susan & Mindy Team...Honesty. Integrity. Results.

Once again, you have provided clear and concise information;  I was asked this question by a woman at the YMCA recently, because she knows I am in real estate.  I just sent her this post to reinforce what I told her.  Good stuff!

Jun 05, 2014 02:18 AM #14
Rainmaker
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Ginny Gorman
RI Real Estate Services ~ 401-529-7849~ RI Waterfront Real Estate - North Kingstown, RI
Homes for Sale in North Kingstown RI and beyond

George, I didn't know that they might make a borrower pay for 2-3 years...good info again!

Jun 05, 2014 10:31 AM #15
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