Client Kept PMI & High Rate – For No Reason
A client who bought in 2019 emailed me this week, asking how to get out of PMI…and there is sooo much to unpack:
- His Rate Was 3.5%. We could have refinanced him into a far lower rate numerous times since 2019.
- Massive Appreciation. His home has appreciated so much that he could have easily eliminated PMI last year with a refi or by following Option #3 below.
- Jumbo Rates Still Lower. Even though rates are almost 1% higher than where they were last year, we can still refinance this borrower into a much lower rate (and out of PMI, as per Option #1 below) because the client is now eligible for jumbo financing.
- Our Marketing Didn’t Work. Hundreds of loan officers subscribe to my blog, and I am sure they are all thinking: “Dude, you’re pathetic! How did you ever allow a borrower with 3.5% and low LTV to keep his rate?” My answer is: hell-if-I-know, but I am embarrassed and looking into it…
- Friends Don’t Let Friends Keep PMI Or High Rates! This is my reminder to all readers (mostly agents) to remind their clients and friends to constantly evaluate PMI elimination and/or refi options. Lenders are happy to oblige, and there are often more options available than people realize, e.g. switching to lower-rate jumbo financing.
Most importantly, for the purposes of this blog, I set out the three options for eliminating PMI below.
Because appreciation has been so massive over the last few years, there is no reason anyone should have kept their PMI in place for more than two years (as per Option #3).
3 Options For Eliminating PMI
Here are three options for eliminating the private mortgage insurance (PMI) obligation associated with a conventional loan (FHA MI is permanent, as a reminder).
Option #1 – Refinancing: If your property appreciates to the point where we can garner a new appraisal to support a value high enough to reduce your loan-to-value (LTV) ratio to 80% or less, you can refinance into a new loan with no PMI. This assumes of course that rates remain favorable. Keep in mind that most appraisers will correlate to the purchase price for the first 6 months, making it wise to wait at least this long to start the refinance process.
Option #2 – Paying loan down to an amount equal to 80% of original purchase price: You can eliminate PMI by paying your loan down if: (1) you notify your servicer with your request; (2) you have a good payment history; and (3) you are willing to prove to the servicer that your property has not depreciated with an appraisal (in some cases).
Option #3 – Proving home has appreciated to the point where the loan-to-value ratio is at 75% or less: If your loan is owned/backed by Fannie Mae or Freddie Mac, you can eliminate PMI if: (1) you notify your servicer with your request; (2) your loan has seasoned for two years with a good payment history; and (3) you provide a current appraisal with a high enough value to support a 75% LTV (if your loan is over 5 years old, your LTV can be 80%).
Founder/Broker | JVM Lending
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