November 13th, 2017 6:49 AM by Jackie A. Graves, President
Most people with private mortgage
insurance want to know how to get rid of it. And for good
reason: PMI tacks on a substantial extra fee to your already massive
mortgage payments. Lenders traditionally require PMI for borrowers who put down
less than 20% on a house. Of course, it's a godsend if you couldn't afford a
home otherwise. But once you have PMI, is there any way to
let it go?
starters, let's get one thing straight: “Mortgage insurance is neither
good nor bad,” says Michael Brown, branch
manager for Churchill Mortgage in Nashville, TN. “It can help people become
homeowners who would not otherwise qualify because they don’t have 20% to put
down. But in the long run, the removal of mortgage insurance could save home
buyers hundreds if not thousands of dollars per year, depending on their loan
ranges in price from about 0.3% to 1.15% of your home loan (the worse your
credit score, the higher the percentage). On a $300,000 house, that's an extra
$900 to $4,500 you'll pay per year. So, it's understandable homeowners
will want to learn how to purge this fee as soon as possible.
understand how to get rid of PMI, you'll first need to wrap your head
around the concept of a home's loan-to-value ratio—which
compares the amount of money you borrowed to your home's value.
calculate your LTV, divide your loan amount by the value of your home. For
example, if you borrow $135,000 for a house valued at $150,000, your LTV would
be 0.9, or 90%.
Your LTV changes over time, and once it reaches 80% or lower,
paying PMI is no longer a requirement.
are two main ways to get rid of PMI, each with its own pros and
cons. The most obvious is just to keep chipping away at paying your
mortgage. It may take several years, but you will get there in due time without
stressing your finances too much. Making extra mortgage payments will help
you get there sooner, too.
to get rid of PMI is to make home improvements, such as adding a
bathroom or renovating a kitchen. From there, you wait one year, then get the
home appraised—hopefully for a higher value that pushes your LTV to a level
where you can offload PMI.
make sure the upgrades you are doing add substantial
value," says Allen Shayanfekr,
founder and CEO of real estate investment company Sharestates. In other words: Stick with
renovation projects with a high return on investment such
as adding attic insulation or a new steel front door (here's a full list of home improvements that'll pay off).
whatever you do, don't fall into the trap of pouring too much money into
renovations that could have gone toward whittling down your mortgage.
the Homeowner's Protection Act, your mortgage
lender is legally required to cancel your PMI coverage once you pay down your
mortgage to 78% of the principal, as long as you are current on your
payments and do not have an FHA loan.
your LTV is below 80%, ask your lender to cancel your PMI, making sure to
follow its guidelines. If your lender doesn't approve your PMI
cancellation in a timely manner, follow up by sending written complaints that restate your
request. Send the letters by certified mail, and keep copies so that you have
evidence in case you need to take court action.
line: Don’t fret if you have to pay PMI. It may be the thing you need to get
your dream house, and it doesn’t have to last forever.
Julie Ryan Evans – To view the original article click here