Private Mortgage Insurance (PMI): How to get rid of it? Save hundreds of dollars!

Private Mortgage Insurance (PMI): How to get rid of it? Save hundreds of dollars!. How to get rid of private mortgage insurance

Private Mortgage Insurance (PMI): How to get rid of it? Save hundreds of dollars! video duration 9 Minute(s) 29 Second(s), published by Paul Sitarz on 20 08 2019 - 23:21:13.

Today let's talk about the PMI
You will learn what is it, and also how you can ask your lender to drop it, saving you money! And I show you a small trap nobody Upfront PMI Mortgage Insurance There are a lot of things to know when purchasing a home
The question of PMI gets asked pretty regularly
Buyers ask us .

Stay tuned for the next video on how to cancel your PMI If you you'd like to purchase a home but have less than 20% down, private mortgage insurance expands your purchase options
Watch my video to learn how If you had to get private mortgage insurance or PMI when you bought a home, Clark has good news! You can ditch it if your home meets certain specifications .

Today let's talk about the PMI. You will learn what is it, and also how you can ask your lender to drop it, saving you money! And I show you a small trap nobody talks about, or at least it is not clear enough.

First, what is a PMI? PMI stands for private mortgage insurance. Its purpose is to protect the lender, in case you do no pay your loan.

You can have a PMI only in the case of a conventional loan. If you have an FHA or VA mortgage, there is no PMI. In the FHA case, you have a MIP, mortgage insurance premium.

So in a conventional loan, the lender prefers not to finance more than 80% of the value of the property. Why? Because in case a borrower does not pay the mortgage, the lender may have to foreclose and sell the property. By lending only 80% of the value, the lender has some room in case the market declines to sell the property and still not lose money. A lender hates losing money.

Do you know how the value of a property is estimated? It is not merely the price you pay. The lender will want to have an appraised value; then he takes the lower of the sale price and the appraised value to have the value on which he will compute the loan-to-value ratio or LTV.

And to avoid a PMI, you have to have a loan-to-value ratio of 80% or lower. If you don't, you may still get a conventional loan with a LTV as high as 95%, but you have to pay a PMI. Please check with your lender.

Now how does the PMI work? Usually, you pay each month an insurance premium with your mortgage payment. The PMI costs depend on numerous factors: your credit score, the loan amount, the terms of the loan, the loan-to-value ratio, and the type of loan.

You may choose three other payment options for the PMI: You can prepay the PMI at the origination by paying a lump sum, you can have the lender to pay for the PMI in exchange for a higher interest rate, and you can have a split premium: you pay a portion of the PMI as a lump sum at the origination plus small monthly payments. The last one is not very common.

You do not pay the PMI for all the life of your mortgage. You can ask your lender, in writing, to drop it as soon as your loan-to-value goes down to 80% and you are both current on your payments and have a good payment history. Your lender will ask for an appraisal of your property and may ask you to certify that you have no junior liens on your property, such as a second mortgage, or a HELOC.

If everything is okay, no more PMI for you!

There are many ways to get to the 80% loan-to-value ratio quickly. You can improve your property, raising its value, and at the same time, mathematically decreasing the LTV ratio. Or you can prepay your mortgage. And the last one, without any action from your part, the market goes up. As tide lifts all boats, so the value of your property is going up. And the loan-to-value ratio goes down.

When the LTV of your property goes below 78%, and you are current on payments, your lender is required by law to drop the PMI. Pay attention! Here is the trap I talked about in the introduction! The lender as to terminate the PMI at the date your loan-to-value goes to 78% as defined in the original mortgage payment schedule. It is not the actual date your loan-to-value goes to 78%.

Let me explain! You prepay your mortgage every month by a small amount, let's say $50. The actual date you PMI is hitting the 78% loan-to-value ratio occurs 6 months earlier than initially planned. Will your lender drop the PMI 6 months earlier? No! He will ask for proof that the property has not declined in value, so a new appraisal you have to pay.

So factoring in the cost of the appraisal, it may not be financially advantageous to ask for the cancelation of the PMI. So, in that case, you may want to pay 6 more months of PMI if it is cheaper.

You may ask your lender if he accepts a BPO instead of an appraisal. A BPO is a Broker's Price Opinion and is usually less expensive than an official appraisal because it is not an official appraised value. So if your lender accepts it, you may try to get a BPO.

Another way to remove a private mortgage insurance is to #refinance your #mortgage. With the interest rates going down recently, it may be an good option. You both get rid of your PMI and lower your monthly payments.

So far, I focused on the early termination of the PMI. But what happens when you are not current on your payments on the date the LTV reaches 78% on the initial amortization schedule? In that case, your real LTV is over 78% on that date (you missed some payments). As soon as your payments are up to date, your lender will cancel the PMI. The last case of termination: when you reach the midpoint of the term of your loan (15 years on a 30 years mortgage), if you are current on your payments, the lender has to terminate the PMI.

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