PMI Removal Appraisals
PMI, the acronym for private mortgage insurance, allows individuals to purchase their home with less than a 20% down payment. If you are paying PMI, the question you need to ask yourself is; “Is it time to stop paying monthly PMI into an escrow account and instead start putting that money into your pocket?”
Every month, if you are like most of us, you dutifully make your mortgage payment. Have you ever given any thought to exactly what makes up your monthly payment? For most of us, the mortgage payment not only pays off the mortgage loan, but a portion also gets put into an escrow account to pay for real estate taxes and a variety of different types of insurance (homeowners, hazard, flood, PMI, etc).
Why You Must Buy PMI
If you purchased your home with conventional financing and put less than 20% down, it is likely you are paying PMI. Private mortgage insurance protects the lender or investor against loss if a borrower stops making payments. Often, homeowners mistakenly pay this insurance years after it is no longer needed and as a result end up paying thousands in useless insurance premiums.
How To Finish Paying PMI
Here is the good news that many homeowners do not realize – once you have reached 20% equity in your home by appreciation, improvements made to the home or by paying down the principal balance of the mortgage (or any combination of the three), you can force the lender to cancel the private mortgage insurance. All you have to do is request in writing that the private mortgage insurance be canceled (most lenders have a brief form which must be filled out) and provide the lender with proof of sufficient equity over 20%.
In most cases, the necessary proof is a state certified real estate appraisal. Recent legislation (the Homeowners Protection Act) requires servicing lenders to make homeowners aware of the existence of any PMI they might be paying for and the requirements necessary to have it cancelled. Fortunately, you do not have to wait for the lender’s notification to rid yourself of PMI. In most cases, if you have equity of 20% or more you’ll be able to cancel it almost immediately.
When Do I NOT Need PMI
PMI is not required in all instances. The general rule is that if a homeowner has put down less than 20% down on a home purchase (single family), mortgage insurance will be required. Homes purchased with a down payment of at least 20% should have enough equity to cover any potential losses by the lender, so PMI is generally not required. There has been a surge in the mortgage insurance industry because of the popularity of purchasing homes with less than 20% down. MICA claims that because of mortgage insurance making up for the down payment difference, over 15 million Americans have been able to purchase homes over the past four decades.
PMI does not protect a homeowner against loss, so a borrower that is required to purchase it will probably never deal with the mortgage insurance company itself. All dealings concerning mortgage insurance are usually handled by the lender. It is also the lender (or the eventual purchaser of your mortgage loan, if any) who has the ultimate decision when it comes to mortgage insurance, meaning how much and when the homeowner has built up enough equity in the property to drop the insurance. Therefore one must remain in contact with the lending institution which services their mortgage (collects the monthly payments) to inquire about this type of insurance and the requirements necessary to have it cancelled.
After a homeowner has built up 20% equity for a single family owner occupied residence (a few banks may require as much as 25% equity – check your loan documents to ascertain what applies in your situation) in the home, they may begin to initiate steps towards canceling the mortgage insurance. The first step is to contact the lending institution to where you send your mortgage payments (loan servicer). This may or may not be the lender who gave you the loan originally. Your loan servicer will be able to help you with the cancellation procedure and will also be able to tell you exactly how much your remaining mortgage balance is. Every loan servicing institution can have different policies regarding this procedure. Ask your servicing lender to provide in writing their specific requirements to cancel PMI insurance.
Keep in mind it is the servicer’s ultimate decision and they will take many factors into consideration including the borrower’s payment history over the life of the loan before allowing you to drop this insurance. This factor alone could alter the servicer’s decision.
Although mortgage insurance may have allowed you to purchase a home, there will come a time when this added monthly expense will no longer directly benefit you. Therefore, it is in your best interest to keep the provisions surrounding it’s cancellation in mind because no one is going to cancel it for you.
What is the best choice?
You are, ultimately, your own financial advisor, and even the smallest expenses should be eliminated if at all possible. By continuing to carry PMI which is no longer required, nor needed only decreases the amount of money you have available in your pocket or your bank account.
Most lenders require a real estate appraisal by a state certified real estate appraiser as the primary proof required to eliminate unnecessary PMI insurance. At Premier Appraisal Services of Tallahassee we specialize in helping people just like you rid themselves of unneeded and unwanted PMI insurance.
Give us a call today with any questions you might have and also check out our Testimonial page to see what others are saying about Premier Appraisal Services of Tallahassee.
A PMI removal appraisal is necessary to demonstrate that you have achieved sufficient equity in your home, allowing you to request the cancellation of Private Mortgage Insurance (PMI) and potentially save on monthly mortgage costs.
Consider a PMI removal appraisal when you believe you have reached 20% equity in your home, either through appreciation, mortgage principal payments, or home improvements. This valuation is crucial to support your request for PMI cancellation.
The PMI removal appraisal serves as the primary evidence to show your home’s current market value. If the appraisal demonstrates that your equity has reached or exceeded 20%, you can submit it to your lender to request the removal of PMI.
The cost of a PMI removal appraisal may depend on factors like the property’s location, size, and complexity. Additionally, the appraiser’s fees and any specific lender requirements can influence the overall appraisal cost.