There is too much information circling around the internet, about how to remove mortgage insurance from your monthly mortgage payment. Unfortunately, it is not as simple as having 20% home equity either. Here is what you need to know about removing this dreaded housing cost.
Is the loan insured by FHA or is the loan conventional? There is a distinct difference between the two. One is insured by the Federal Housing Administration while the other is not. FHA loans, while more flexible, tend to be pricier in total costs despite lower rates of interest.
If your loan is FHA:
Then your monthly mortgage insurance is permanent for the life of the loan, unless you put 10% or more down. 10% or more yields you the opportunity to drop mortgage insurance after 120 months and 20% equity. You heard that right! AND 20% equity. If you are putting down more than 10%, the mortgage insurance still has an automatic ten year waiting time.
If your loan is Conventional:
Then the loan may contain mortgage insurance, which can be removed after 24 months and 20% equity. Each servicer, however, is different and may contain a different petition process. It would not be uncommon for your lender to require that you pay for an appraisal to support the 20% equity position. To be clear: it is a petition, or rather a request, to drop the PMI. This is by no means a guarantee the lender will drop the PMI. Your lender is required by law, to remove the private mortgage insurance at 78% of the loan-to-value (22%) of the original application value. This is based on your payment amortization schedule. This means whatever 78% of your last loan value was, is when your lender must remove the PMI. The time frame could be well in excess of two years. It is all based on how much you put down when you bought your home (assuming you have not previously refinanced).
According to the Consumer Financial Protection Bureau, borrowers should also be current on their loan and be in good standing with their lender.
Anything else you may read or see regarding removing mortgage insurance is false. When you are applying with a lender, test them. Ask them what the CFPB’s stance on mortgage insurance is. An experienced, reputable, lender should have this information at their fingertips. If you sense anything else, pick another mortgage company. Buying or refinancing a home, as you already know, is an incredibly large financial decision. This should be completed by someone who “knows loans”. Consumers expect great rates, fast return times and responsive communication from any mortgage provider. However, receiving those things with a mortgage professional that is also a student of their craft, may take time to find.
Scott Sheldon is a local mortgage lender, with a decade of experience helping consumers purchase and refinance primary homes second homes and investment properties. Learn more at www.sonomacountymortgages.com.