Here are three options for eliminating the private mortgage insurance (PMI) obligation associated with a conventional loan (FHA MI is permanent).
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%).
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