When Can I Eliminate The PMI Or MI?

Anna 'Banana' Kruchten is hosting an ActiveRain contest this month titled "FAQ Break Into Summer Organized Contest" in which she is challenging us to write 5 new posts answering 5 consumer FAQ's.  As I have stated on my previous blogs in this challenge, this is an easy one for me.  There are at least twice that number of questions I am asked on a regular bases by consumers.  I have already posted three blogs about the most FAQ I am asked from consumers "What Do I Need To Do To Get Pre-Qualified For A Mortgage?",  "Why I Have To Pay Points?", "What Is PMI/MI & Why Do I Have To Pay It?"  The fourth blog is a natural follow up question to the third question I previously blogged about.

When Can I Eliminate The PMI Or MI?

I can't blame Borrowers for wanting to know when they can get rid of PMI or MI after seeing what it costs them each month.  It is easy to see why they would want to eliminate PMI/MI as quickly as possible. 

On a Conventional Mortgage if the Borrower makes the minimal down payment, and has good credit scores, they can expect to see a PMI payment of about $60 to $75 per month for each $100,000 they borrow.  On a FHA Mortgage if the Borrower puts down the minimal down payment of 3.5% their MI payment will be about $70 each month per $100,000.

Private Mortgage Insurance (PMI):  On Conventional Mortgages can be eliminated in a couple of ways:

• By paying down the principle balance on the mortgage to 78% of the beginning loan amount, the PMI payment will automatically be eliminated, or
• Once the principle balance has been paid down to 80% of the beginning loan amount, the Borrower can request a new appraisal of the property, and if property value has not decrease, the Borrower may request the PMI company to eliminate the PMI.  Elimination at 80% is not an automatic approval, depending on payment history the PMI Company could deny the request.

Note:  PMI Companies may require the Borrower to pay PMI for two years or more before granting a request to eliminate the PMI.

Monthly Insurance (MI):  On a FHA 30 Year Fixed Mortgages can also be eliminated, but ONLY if the Borrower made a 10% or more down payment when they first obtained the loan.

If the loan is for 90% of the purchase or appraised value (whichever is less) the MI will be eliminated after the Borrower has had the mortgage for at least 11 YEARS,  AND (not or), paid down the principle balance on the mortgage to 78% of the original loan amount.

It does not matter what the property values are during the 11 years the MI payment will remain until the principle balance has been paid down to 78%.  Also the MI payment will remain even if the principle balance has been paid down to 78%, until the full 11 years are completed.  BOTH the 11 years and the 78% principle balance reduction have to be met, NO exception.

If the loan is for more than 90% of the purchase or appraised value (whichever is less), the MI will be on the loan for the life time of the term of the loan.  In other words if the loan is for more than 90%, the MI will never be eliminated.

The only way to get rid of the MI if the FHA loan was for 90% or more of the appraised or purchase value, is to refinance out of the FHA loan into a conventional loan.  If the property appraises high enough for the new refinanced loan to be 80% or less of the appraised value, then there will not be PMI on the new refinanced loan.

Guidelines can change when it comes to the elimination of PMI or MI, so a trusted Loan Originated should always be consulted for updated information and advice.

 

 

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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