5 Steps to Eliminating Private Money Insurance

Private Mortgage Insurance (PMI) is insurance against the non-payment of, or default on, an individual mortgage or loan involved in a residential mortgage transaction.

PMI protects a lender against loss if a borrower stops making mortgage payments. It also makes it possible for you to buy a home with as little as a 3-5 percent down payment.  In most cases, a borrower who makes less than a 20 percent down payment must buy PMI until the loan is paid down to 80 percent of the purchase price. At that point, the buyer can request the extra insurance be dropped.Ridding yourself of PMI may allow you to decrease your mortgage as much as $200/mo!  The following are the 5 steps for eliminating PMI

ü  Step 1- Obtain an amortization schedule for your loan.  This information should be in your closing documents.  Specifically, check the Truth In Lending statement that was given to you at closing and find when the PMI is scheduled to be dropped.

 

ü  Step 2- Call your lender.   With the amortization schedule and Truth in Lending information in hand, call your lender and discuss the actual number of payments you must make to get to 80 percent of the original loan. Your target is 80 percent of the original purchase price. Remember that you have to request this, and the lender will grant it only if your loan payment history has been acceptable.

 

ü  Step 3- Calculate 80 percent of the original sale price.  Check where you are on the amortization schedule and how many payments it will take to get to the 80 percent balance. If you are not close to the 80 percent target, decide on a plan to pay this down faster. For example, you could pay an additional $100 a month, or you could make the equivalent of one additional payment per year.

 

ü  Step 4- If you believe the value of you home has increased, tell your lender that you want to provide a new appraisal. One caution: Be sure that the value has increased enough to warrant paying an appraiser's fee. One way to do this is to ask a real estate agent to run a "sold search" in your neighborhood to see how much buyers paid for houses that are similar to yours. Be aware that to drop PMI based on a new appraised value, most lenders will require that you have at least two years of excellent payment history on your home loan.

 

ü  S Step 5 – Send your lender a packet.  Once you have arrived at the 80 percent target, obtain a statement showing your current balance, either from the lender's website or through a request by . Send your lender a package containing the following:

 

·         The current balance statement

·         A copy of the closing statement from original purchase

·         Copy of the new appraisal

·         Write a cover letter showing which way you arrived at 80 percent (either by appraisal or by paying down the balance) and request that the PMI be dropped

·         Keep a copy of all the documents you submit to your lender.

·         Mail your request package using "return receipt requested" to be certain it is received.

Surprisingly, Lenders aren’t as aggressive or excited about dropping PMI.  Therefore, you will want to contact the lender to follow up if you do not receive a response within 30 days.