Avoiding or Eliminating PMI

Eliminating Private Mortgage Insurance

If you have a loan with Private Mortgage Insuance (PMI) made after July 1999, lenders are required by federal law to automatically cancel the PMI when the loan balance falls below 78 percent of your purchase price not when you achieve 22 percent equity, which will happen much more quickly with rising property values. But you generally have the right to cancel PMI once your equity reaches 20 percent, regardless of the original purchase price.

I know this may come as a shock, but if your home has gone up in value, your lender is not likely to call you to tell you they have removed your PMI due to value appreciation - it will be up to you to stay on top it. Property values in many parts of Texas have shown nice appreciation over the last few years and that may have earned you 20 percent equity even if you haven't paid down much principal.

If you think you've reached 20 percent equity in your home, call your lender to find out what their requirements are to remove PMI. Often times, they will require an appraisal at your expense, but this $200 -$350 expense will be well worth it to remove PMI unless you are moving in a few months. Of course, you can call me and I can check with one of my many appraisers of what they think your home is worth before you pay for an appraisal - at no charge to you !

AVOIDING PMI is often possible by spliting the total loan into two loans whereas the first loan is set at 80% of the purchase price to avoid PMI and then the 2nd loan makes up the difference of 10%, 15 % or even 20% for our typical 100% loan known as an 80/20. Why have two loans when you can have one loan and PMI ? THe main reason is because the payment will usually be less with the two loans than with one loan and PMI ! Another benefit of the two loan structure is that the interest on the 2nd loan is tax deductible whereas PMI is not.

Why then would someone have one loan with PMI when they could have had a lower payment with two loans ? Sometimes, circumstances are such that you have no choice and that is OK, PMI serves it's purpose when necessary. Other times it is because one loan with PMI benefits the loan officer more than the borrower. One loan is easier to originate and is also generally more lucrative for the loan officer - espcially in Texas. Remember from my Home Page, I strive to build my business on a Referral Basis and in order to EARN REFERRALS from you, I must do what is best for you, not for me.