If you purchase a Napa Valley home in the last few years, most likely you did so without putting 20% down and have private mortgage insurance (PMI). If this is the case and given the recent nearly 8% appreciation for home values here with the same predicted for this year, you might want to have a look at your PMI. Below are some tips for helping you remove your PMI and dropping your monthly mortgage payment by a big chunk.
- Most lenders require borrowers to pay private mortgage insurance (PMI) on mortgages in which borrowers make a down payment of less than 20 percent. PMI is designed to protect the lender in case the borrower defaults.
- Once a borrower has made enough payments to boost the equity of the home to 20 percent of the original purchase price, the borrower can ask the lender to cancel the PMI.
- By law, the lender must cancel PMI at this point as long as the borrower has a history of on-time payments, the borrower can establish the property value has not declined, and there is not a subordinate lien – such as a home equity loan – on the property.
- If a borrower cannot get the PMI removed at the 20 percent mark, the lender must automatically cancel the PMI when the equity of the home reaches 22 percent (based on the original purchase price). For certain loans defined as “high risk” by the lender, borrowers must wait until equity reaches 23 percent of the original purchase price.
- If a borrower is unable to get the PMI removed using the previously mentioned tactics, the lender must cancel it once the borrower is halfway through the loan term, provided the borrower is current on payments.
- The PMI cancellation rules do not apply to loans made by the Federal Housing Administration or Veterans Administration, which have their own requirements for removing the PMI.
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