Private Mortgage Insurance (PMI) is a type of insurance required by most lenders when a borrower puts down less than 20% of the home’s purchase price as a down payment. The purpose of PMI is to protect the lender in case the borrower defaults on the loan. However, once the home buyer has built up enough equity in the property, they may be eligible to have the PMI removed.
Removing PMI from a mortgage can significantly lower monthly mortgage payments and save homeowners thousands of dollars over the life of the loan. Here are the steps to follow in order to remove PMI from a mortgage:
- Check your loan-to-value (LTV) ratio: The first step in removing PMI is to check your loan-to-value ratio, which is the amount of your mortgage divided by the appraised value of the property. In order to remove PMI, your LTV ratio must be below 80%.
- Contact your lender: Once you have determined that your LTV ratio is below 80%, you should contact your lender and request that the PMI be removed. The lender will typically require a new appraisal of the property in order to determine its current value and calculate the LTV ratio.
- Provide proof of property value: In order to have the PMI removed, you must provide proof of the property’s current value. This can be in the form of an appraisal or a recent property tax assessment.
- Follow the lender’s procedures: Each lender has its own procedures for removing PMI, so it’s important to follow the steps outlined by your lender. This may include filling out a request form or providing documentation, such as proof of property value.
- Wait for PMI to be removed: Once you have submitted the necessary documentation, you will need to wait for the lender to process your request and remove the PMI. This process can take several weeks, so be patient.
- Verify the PMI removal: After the PMI has been removed, verify that the change has been reflected on your monthly mortgage statement.
It is important to note that the PMI removal process may not be automatic and the lender may require that you meet certain conditions, such as paying down the mortgage balance or providing additional proof of property value. Additionally, some lenders may charge a fee for removing PMI, so be sure to ask about any potential fees beforehand.
In conclusion, removing PMI from a mortgage can save homeowners thousands of dollars over the life of the loan and significantly lower monthly mortgage payments. By following these steps, homeowners can successfully remove PMI from their mortgage and enjoy the financial benefits.