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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.
