Thursday, 16 February 2012 21:25
This is a popular question and a few years ago pmi could get removed rather quickly because of home values increasing so quickly. In the past, one could request a review of their mortgage to appraised value ratio and if the new appraisal came back where the borrower owes less than 80%, the pmi was removed. Recent declines in values have made this method not work so one must plan on the worst case scenario. Each loan type has a different set of rules. Prior to June 1, 2013, FHA pmi had to stay on the loan a minimum of 5 years and once the balance is under 80% of the original price (or value on a refinance) the borrower must request that the pmi come off. At 78% the pmi will be removed automatically by the lender. FHA 30 year fixed rate loans closed after June 1, 2013 with less than 10% down payment must have PMI for the life of the loan. Effective October 1, 2011 USDA loans have an annual fee due which lenders collect this from the borrower monthly in the mortgage payment which is like PMI. The pmi is very low compared to FHA but it will continue for the life of the loan, decreasing a very little bit each year. VA mortgage loans do not have monthly pmi which make them a very good option if the borrower is eligible. On conventional mortgage loans pmi will need to stay on the loan until the borrower notifies the lender when under 80% of the original price (appraised value on refinancing) or when the balances is under 78%, the lender will automatically remove it. Keep in mind that the lender may request an appraisal, at the borrower’s expense normally, to make sure that the value has not decreased before removing the pmi. PMI is always looked at as a negative thing: “PMI only protects the lender” for instance. But you have to remember that a borrower wouldn’t be able to borrow 95 or 100% of the price without it. That is a very helpful thing to a borrower. For more information, please contact me.