If you have placed less than 20% down on a conventional home loan for a recent home purchase and continue to pay PMI, listen to this. You may be able to follow these steps and remove pesky PMI payments from your mortgage.
I purchased a home in September 2017 for $341,000. The interest rate was near 4% and I put roughly 10% down. I hear what you're asking, why not put the 20% down as to remove PMI payment? My thought, if I can borrow money for under 5% and get a reasonable rate of return elsewhere, why not take that money and invest it? That is exactly what I did.
Fortunately, interest rates dropped even further and I refinanced my home loan to 3.25% in 2019. I hear the murmurs in the background about refinance cost and only getting 75bps versus the traditional 1% breakeven, trust me it is understood. I decided to do this believing rates could not fall further. Boy was I wrong on that bet. Rates continued to fall under 3%, and I again thought about refinancing under 3%, but the cost was not worth it.
All during this time I was paying PMI. PMI is a type of insurance that's required by mortgage lenders if your down payment is less than 20% of the homes purchase price. PMI protects the lender against losses if you default on your mortgage. My PMI was really low, however, giving away free money, is never ideal.
As you know, home prices have gone up considerably, and I began to realize that I could get rid of that PMI payment by getting my home value appraised by the lender and asking to remove that PMI payment based on my new LTV (loan-to-value).
So what did I do to get rid of those pesky PMI payments?
- Contact your mortgage lender to see if you are eligible for a PMI removal on your loan.
- Send a letter with your loan number, requesting the removal of PMI from your loan, with your signature and date. On this letter, I would advise you to have 2 to 3 different ways by which to contact you. There are situations where the lender may use the fact they could not contact you to continually push this off.
- The lender will then order an appraisal or a BPO (Broker Price Opinion), to value the residence. The broker well then come by the residence and take pictures of the front, each room, outside back, and any improvements you have made. (As a best practice, I would also send a letter specifying improvements you have made with the dates and the cost of those improvements to the lender.)
The BPO sends in the valuation which then is a 2-week process. I would suggest you contact your lender 3 to 5 business days after the BPO sends in the valuation to check on status.
My process was much quicker than that. I received a notice of rejection from the lender due to not having sufficient enough data on my removal request. I decided to contact the lender and it turns out that my PMI removal was not rejected, but actually in the process for approval. I know it seems like a lot to save $116/month, but no one likes to give away money.
One thing of note, this is only available to conventional loans not FHA. FHA is more stringent, and in most cases will not remove the PMI without meeting certain standards they put in place on the original loan. Also, PMI is based on the lender. My lender requirement was 70% LTV not the traditional 80%, and they also used my current market price of the home while other lenders may use the original purchase price. If you have questions, feel free to contact 9innings@9icapgroup.com for assistance.
*Guardian and its subsidiaries do not issue or advise with regard to mortgages.