Here are three options for eliminating the private mortgage insurance (PMI) obligation associated with a conventional loan (elaborating on Monday’s Comments).
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. It should be noted that appraisers are often reluctant to appraise a property for a value higher than the purchase price within 12 months of close of escrow.
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 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%).
Note that when your LTV drops to 78% through normal amortization, the lender is required by law to eliminate your PMI automatically without you notifying them.
Please also note that the above are just general guidelines and that they can vary somewhat from lender to lender. It is important to contact your loan-servicer to get all the specifics.
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