Getting Rid of Mortgage Insurance
When am I eligible to drop my MI?
Many people want to know what the best way to get rid of mortgage insurance. If you want to avoid PMI altogether, you must put 20% down when you purchase the property. Somewhat recently, people could get a 2nd mortgage for that 20%, but many lenders have done away with “piggyback” loans so more people are now buying homes and paying PMI because they are not able to come up with the 20% down.
If you only put 5% down and are now wondering when they are able to get rid of PMI, the answer is when you reach a point where you think you have 20% equity in your property. You should then contact your mortgage servicer. They will be able to tell you what their requirements are and will usually send you a package of instructions that involve getting an appraisal and completing some forms. Many assume that once 20% equity is reached, that there lender will drop the PMI automatically, but that is most likely not the case. When dropping PMI, the factors that your lender will consider are the current value of your home and if you’ve made your mortgage payments on time. Be sure not to spend the money ordering an appraisal to determine your property value until you have spoken with your lender about the process.
If you have an FHA loan — two things must happen in order to cancel mortgage insurance — the UFMIP account must be depleted completely (this takes 60 months from when you took out your loan) and you must have paid down the principal to 78% of your original loan balance. FHA monthly mortgage insurance does not take in to account any property appreciation that may have occured.
