Mortgage insurance, no matter what kind, protects the lender-not you! Consumerfinance.gov
Typically, borrowers making a down payment of less than 20
Mortgage insurance lowers the risk to the lender making the loan to you, so you can qualify for a loan that you might not otherwise be able to get.
PMI, the acronym for private mortgage insurance, allows individuals to purchase their home with less than a 20% down payment. If you are paying PMI, the question you need to ask yourself is: “Is it time to stop paying monthly PMI into an escrow account and instead start putting that money into your pocket?”
Every month, if you’re like most of us, you dutifully make your mortgage payment. Have you ever given any thought to exactly what makes up your monthly payment?
For most of us, the mortgage payment not only pays off the mortgage loan, but a portion also gets put into an escrow account to pay for real estate taxes and a variety of different types of insurance (homeowners, hazard, flood, PMI, etc.).
If you purchased your home with conventional financing and put less than 20% down, it’s likely you’re paying PMI. Private mortgage insurance protects the lender or investor against loss if a borrower stops making payments. Often, homeowners mistakenly pay
Here’s the good news that many homeowners don’t realize–once you’ve reached 20% equity in your home by appreciation, improvements made to the home or by paying down the principal balance of the mortgage (or any combination of the three), you can force the lender to cancel the private mortgage insurance. All you have to do is request in writing that the private mortgage insurance is
In most cases, the necessary proof is a state certified appraisal.
Recent legislation (the Homeowners Protection Act) requires servicing lenders to make homeowners aware of the existence of any PMI they might be paying for and the requirements necessary to have it
PMI is not required in all instances. The general rule is that if a homeowner has put down less than 20% down on a home purchase (single family), mortgage insurance will be required. Homes purchased with a down payment of at least 20% should have enough equity to cover any potential losses by the lender, so PMI is generally not required. There has been a surge in the mortgage insurance industry because of the popularity of purchasing homes with less than 20% down. MICA claims that because of mortgage insurance making up for the down payment difference, over 15 million Americans have been able to purchase homes over the past four decades.
PMI does not protect a homeowner against loss, so a borrower that’s required to purchase it will probably never deal with the mortgage insurance company itself. All dealings concerning mortgage insurance are usually handled by the lender. It’s also the lender (or the eventual purchaser of your mortgage loan, if any) who has the ultimate decision when it comes to mortgage insurance, meaning how much and when the homeowner has built up enough equity in the property to drop the insurance. Therefore, one must remain in contact with the lending institution that services their mortgage (collects the monthly payments) to inquire about this type of insurance and the requirements necessary to have it
After a homeowner has built up 20% equity for a single-family owner-occupied residence (a few banks may require as much as 25% equity–check your loan documents to ascertain what applies in your situation) in the home, they may begin to initiate steps towards
Keep in mind it’s the servicer’s ultimate decision and they’ll take many factors into consideration, including the borrower’s payment history over the life of the loan before allowing you to drop this insurance. This factor alone could alter the servicer’s decision. Although mortgage insurance may have allowed you to purchase a home, there will come a time when this added monthly expense will no longer directly benefit you. Therefore, it’s in your best interest to keep the provisions surrounding its cancellation in mind because no one is going to cancel it for you.
You are, ultimately, your own financial advisor, and even the smallest expenses should be eliminated if possible. Continuing to carry PMI that is no longer required or needed only decreases the amount of money you have available in your pocket or your bank account.
Most lenders require a real estate appraisal by a state certified appraiser as the primary proof required to eliminate unnecessary PMI insurance. At Appraisals of Southwest Florida, we specialize in helping people just like you rid themselves of unneeded and unwanted PMI insurance.
We offer a free initial consultation and will help you determine if you have sufficient equity in your home to enable you to cancel your PMI.
Give us a call today with any questions you might have and check out our ‘Praise’ page and see what others are saying about Kathy Homan and ‘Appraisals of Southwest Florida.’
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