What is Morgage Insurance or PMI?

Private Mortgage Insurance can be stopped in a number of ways. If you have an FHA loan, you can no longer cancel out PMI while maintaining your original loan; however, there are ways you can still get rid of it:

Refinance: This is probably the most obvious for getting rid of PMI on an FHA or any loan for that matter. Let’s get back to basics-the reason why you had to have mortgage insurance in the first place was because you were putting down less than 20% of your property’s value down for your down payment. The insurance protected the lender against you losing property. Once you get your principal balance down to 80% of your home’s value, you can refinance the property to get rid of PMI. It won’t be required.

Just Keep Paying: It is law (as I understand it…consult a lawyer/attorney/other professional), in the case of all loans with PMI except FHA loans, that once you have paid down your principal to 78% of its original value, the lender has to remove the PMI fee and the mortgage insurance is cancelled.

Contact the Lender: If you have paid down enough toward principal that your loan-to-value, LTV, is at 80% or below, some contracts allow you to contact the lender and simply request they cancel PMI. Some contracts will require a new appraisal; whereas others are satisfied using the original purchase price or appraisal. If you have to buy a new appraisal to prove it, it will likely be worth it as the payback period is usually just a couple months on the cost of the appraisal vs the amount you’re paying for PMI.

Rehab/Add On: One of the ways to get your home to 80% of its value is by adding value rather than paying down what you owe. For instance, if you owe $80K on your home and you do enough work on your home through an addition or other work to raise the value to $100K, your lender may allow PMI to be removed with a new appraisal. This is a little more drastic than the other methods, but it is still possible.

I hope you’ve learned something about how to have PMI removed from your loan. If you have any questions about real estate investing, ask in the comments and please upvote my posts, then subscribe to my YouTube channels: http://www.watchBobOnYouTube.com

Au revoir!