After the application of a home loan, you will receive two documents, a loan estimate, and closing disclosure. On the surface, these documents are identical but they both serve slightly different purposes. Up Next: Expenses To Expect In The First Year Of Homeownership Here is what you need to know about the differences between these […]
Removing PMI from Your Kansas City Home Loan
Since regulations have led to stricter standards, paying private mortgage insurance (PMI) is now harder to avoid when getting a Kansas City home loan. Most homebuyers will have PMI for some amount of time during their mortgage. The good news is that PMI can usually be canceled after your home’s value has increased enough to give you 20-25% equity in your home.
Lenders are required by law to terminate the borrower’s mortgage insurance when the loan balance is scheduled to reach 78% of the original value. However, the borrower must make at least 24 consecutive on-time monthly payments for the insurance to be valid. It’s also important to recognize that the 78% threshold is based on the date that the Kansas City home loan is scheduled to reach that percentage, not when your loan actually reaches this percentage. This means that you could end up paying months or even years worth of unnecessary PMI payments. This best way to avoid these excessive fees is to request a cancellation.
Borrower Requested Cancelling
Most lenders will recognize that there’s little sense in requiring PMI after it’s clear that you are making your mortgage payments on time and have enough equity in your property to cover the loan if the lender has to foreclose in the future. Homeowners have to be their own advocate when it comes to cancelling PMI. The federal Homeowners’ Protection Act applies to individuals who purchased their homes after July 29th, 1999 and says that borrowers can ask that their PMI be canceled when they have:
- Paid down their mortgage to at least 80% of the loan
- A good credit of payment and compliance with the terms of their mortgage
- Made a written request and shown the value of the home has not declined
- Not hindered the value of the home by taking out additional loans
How to Get Your PMI Cancelled
The procedure for getting your PMI cancelled is essentially in the hands of your lender. Generally speaking, you will likely need to do the following to cancel your PMI:
- Contact your lender to find out the appropriate PMI cancellation procedures by writing a letter to them formally requesting guidelines
- Get your home appraised by a professional to determine its current value
- Calculate your loan-to-value ratio using the results of the appraisal
- Compare your loan-to-value ratio to the one required by the lender
Keep in mind that the home’s re-appraisal must be paid for by the owner if they are citing a rise in the property value.
Eliminate PMI by Refinancing
If you do not a loan-to-value ratio of 78% yet, you may still be able to eliminate your PMI payments by refinancing your current Kansas City home loan. If the home’s value has appreciated, a new loan may account for less than 80% of the home’s value. This means you will not have to pay PMI on the “new loan”. Although this may be a solution for some people, it’s important to make sure refinancing makes financial sense. If you are able to receive a lower rate and eliminate PMI, it may be a choice move for you.