How Can I Avoid Or Get Rid Of PMI?

If you are looking to buy a home, but don’t have at least 20% as a down payment, you will likely have to buy private mortgage insurance — PMI. This insurance, which makes home ownership possible for so many home buyers, covers your lender in case you default, and it easily adds between $50- $200 to your monthly payments (depending on the purchase price). You may be stuck with it for now, but can you get rid of it?

Eventually, yes you can. After making enough payments, you reach a point where the bank basically sees that you have enough equity in the house so the insurance isn’t required anymore. Federal law actually requires banks to cancel PMI when you hit certain thresholds. This happens when the principal balance of the mortgage is less than 78%  of the original value of the property. This is referred to as the loan-to-value ratio — the outstanding loan divided by the value of the property.get rid of PMI mortgage insurance san diego

Even if you haven’t reached the 78% level yet, you can request cancellation at other times. The servicer is supposed to cancel the insurance at the halfway point — so, 15 years into a conventional 30-year mortgage.

Also, you have the right to ask for earlier cancellations — at 80 percent. The Consumer Financial Protection Bureau gives instructions for doing this:

  • Your request must be in writing.
  • You must have a good payment history and be current on your payments.
  • Your lender may require you to certify that there are no junior liens (such as a second mortgage) on your home.
  • Your lender can also require you to provide evidence (for example, an appraisal) that the value of your property hasn’t declined below the value of the home when you first bought it. If the value of your home has decreased, you may not be able to cancel your PMI.

Of course, you should also have a clean payment history.

Look on the Bright Side

Even if you are not yet able to cancel you PMI, at least it’s tax-deductible!


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4 Responses to “How Can I Avoid Or Get Rid Of PMI?”

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