Private Mortgage Insurance, also known as PMI, is an insurance policy that protects the lender in case of default by the borrower. PMI premiums are added to the borrower’s monthly payment until the loan reaches a certain balance. Removing PMI may save the borrower hundreds or even thousands of dollars in monthly payments. Below are the steps to follow to remove PMI, as well as some important considerations.

Step 1: Understand When PMI Can Be Removed

According to the Homeowners Protection Act, PMI can be removed when the borrower reaches 20% equity on their home. This can be done by paying down the loan or through appreciation in the home’s value. However, some lenders may have different requirements, so it is important to check with the lender to determine when PMI can be removed.

Step 2: Get an Appraisal

Before requesting the removal of PMI, it may be necessary to get an appraisal to determine the current value of the home. The lender may require an appraisal, so it is important to confirm this before proceeding. An appraisal will cost the borrower a few hundred dollars, but it may save them thousands in PMI premiums.

Step 3: Request PMI Removal

Once the borrower has reached 20% equity and has an appraisal, they can request that the lender remove PMI. The request should be made in writing and should include the appraisal report. The lender may require additional documentation, such as proof of payment history or employment verification. It is important to supply any requested documentation in a timely fashion to avoid delays.

Step 4: The Lender’s Response

Once the lender receives the request and any necessary documentation, they have 45 days to respond. The lender may approve the request, deny the request, or request additional information. If the request is approved, the lender will stop charging PMI. If the request is denied, the borrower should ask the lender for the specific reason and for any information on how to remedy the situation.

Step 5: Continue Making Payments

Even if PMI is removed, the borrower is still responsible for making their monthly mortgage payments on time. If the borrower misses payments or falls behind, the lender may reinstate PMI or foreclose on the home.

Important Considerations

  • Some loans may have different requirements for removing PMI, such as FHA loans or loans with a high LTV ratio.
  • Borrowers with a good payment history and credit score may be able to negotiate a lower PMI premium with the lender.
  • It may be possible to cancel PMI sooner than reaching 20% equity by making additional principal payments or making home improvements that increase the value of the home.
  • Borrowers should keep track of the loan balance and the estimated value of the home to know when they reach 20% equity.

Removing PMI can be a significant financial benefit for homeowners. It is important to understand the steps and requirements for removing PMI, as well as any alternative options. Borrowers should also maintain a good payment history and keep track of their equity in the home to ensure they are eligible to remove PMI as soon as possible.

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