How to get rid of pmi

For borrowers who purchased a home with less than a 20% down payment, the lender likely added Private Mortgage Insurance (PMI) to their loan. This insurance increased their monthly payment. Before learning how to get rid of PMI, let’s know more about it.

What is PMI?

PMI is insurance that protects the lender if the borrower defaults on their loan. However, it offers no coverage to the buyer and should not be confused with mortgage protection insurance which pays off the mortgage if the borrower passes before paying off their loan.

PMI allows borrowers with smaller down payments the opportunity to obtain a loan. The smaller the down payment, the riskier the loan is to the lender. The lender offsets this risk with private mortgage insurance.

How Much Does PMI Cost?

Let’s assume a $1,000,000 purchase and a buyer with a 740+ Fico Score. With a 10% down payment, the additional PMI premium is approximately $225 monthly. However, with just a 5% down payment, the premium jumps to approximately $332 monthly.

How to Get Rid of PMI

Equity is the difference between the value of the home and the amount of money owed on the mortgage. If you are unsure of the value of your home in today’s market, contact your Realtor. Most home buyers who purchased in the last several years have experienced rapid price appreciation. Their equity has increased. Once a borrower has achieved 20% equity in their home, they should contact their lender. Before canceling this insurance, the lender may require that the borrower pay for the lender’s appraiser to complete a home valuation. If an appraisal is needed, ask your Realtor to provide comparable properties (comps). A comp is a recently sold home in your neighborhood that is similar in condition, features, square footage, lot size, etc.

Once the appraiser validates your 20% or more equity, the lender should remove this insurance.

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