PMI or Private Mortgage Insurance has been in the news lately and I have been fielding some questions about what it is, how it works and when you can cancel it if you already have it.
PMI is an insurance that mortgage lenders want to secure that the loan they are making to homeowners will be, in due course, paid in full. Traditionally lenders will want you to have at least 20% equity in your home; so if you purchase your home with a 90 or 95% loan on the purchase price they will require insurance to
cover any loss they may incur in the event of foreclosure. If you have an FHA or VA loan you pay the government for the mortgage insurance, otherwise your lender will arrange for the insurance and you will pay for it on a monthly basis.
This insurance was abused in the past; in 1999 Congress enacted the Homeowners Protection Act – also known as the PMI Cancellation Act. The act applies primarily to residential mortgage loans; the requirements of the law vary depending on whether your loan is a high risk or a conforming loan.
If your loan balance hits 80% of the original value when you first obtained the loan and you ask your lender to terminate the insurance, the lender must comply. If you have refinanced your loan then that value is what is considered not the first original loan amount. And when your loan to value drops to 78% the cancellation of the PMI is automatic. However, the lender is not obligated to
accept your request for termination if you have a second mortgage or you have
had late payments in the past year.
There can be specific requirements to obtain a cancellation. Often time an appraisal is required, you may be financially responsible for the appraisal and your lender may have a very specific list of approved appraisers.
As with all contractual aspects it is highly recommended that you seek the advice of a professional.
I have the resources and experience to assist you with this and all of your real estate needs and questions, and I look forward to hearing from you.
Keller Williams – Greater Cleveland – Carol Murphy Team