Make Private Mortgage Insurance a Thing of the Past

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For loans closed since July 1999, lenders are required (by federal law) to automatically cancel Private Mortgage Insurance (PMI) when the loan balance gets under 78 percent of your purchase price - but not when the borrower achieves 22 percent equity. (There are exceptions -like some "high risk' loans.) But you can actually cancel PMI yourself (for loans made after July 1999) at the point your equity gets to 20 percent, no matter the original purchase price.

Do your homework

Review your loan statements often. You'll want to be aware of the the purchase amounts of the homes that are selling in your neighborhood. You've been paying mostly interest if the closing was fewer than 5 years ago, so your principal most likely hasn't been reduced by much. With FHA loans, no matter how much you've paid down your balance, you have to pay at least 60 months on your loan before the mortgage insurance can be deleted or if you've reached 20% equity prior to the 60 months on an FHA loan, you can refinance into a 30 year conventional loan and get rid of it that way.

Verify Equity Amount

You can start the process of PMI cancellation as soon as you're sure your equity has risen to 20% (conventional loan only not FHA). You will need to notify your mortgage lender that you want to cancel PMI payments. Next, you will be required to submit proof that you are eligible to cancel. You can get documentation of your home's equity by getting a state certified appraisal using form URAR-1004 (Uniform Residential Appraisal Report), required by most lenders before canceling PMI. However, the lender has the right to do their own appraisal (probably at your expense) with an appraiser on their approved list, to double check your appraised value.

Kevin Walton at C2 Financial Corporation, answers these questions about PMI every day. Call me at 800-506-0632 ext.0