I stopped into the Fannie Mae site to read about when the lender is required to review the PMI issue. It says when the loan is paid down to 80% if the lender is requested by the client, they must review the loan for concidering dropping the PMI. It did not say 80% loan to original value it said when the loan is paid down so I asume that means you have to build up 20% loan equity. On a 90% loan the lender is covered for the top 25% of the outstanding balance at the time of foreclosure so there is little or no reason for a lender to ever release the PMI except if the customer has been flawless in their payment history.
As far as I know, PMI usually ranges about .005% to 1% of the loan amt. I think usually it’s closer to .005%. If you take a loan amt. of 100,000 x .005% it equals out to be $500 a month. Take $500 and divide it by 12 and this will give you a PMI of $41.67 a month.
If you want to get rid off it, you will have to have the property re-appraised to prove your equity is 20% or greater.
As far as MI goes, from what I understand it is only on FHA loans and is non-removable.
I am a big fan off piggy back loans ( a small second mortgage at a slightly higher interest rate) for your remaining down payment to equal out 20%. These payments are tax deductible, and are applied to the principal balance off the second mortgage as opposed to PMI which is not. ex-80/15/5 or 80/10/10.
Monthly PMI is figured on the loan amount an is based on your loan to value. the lower the number the lower the MI. 100, 97, 95, 90, 85 once you have 20% down for the most part MI does not figure into a new loan. But if you have a loan with MI it will be on till you either refi or you can ask the lender to remove it. I would not count on that since the lender gets a good payoff if you go bk.
Banks are now required to remove PMI when LTV decresses to 78%. On an OOSFH you can get an independant apraisal and if the house has apprecieted enough to 80-% LTV, then you may demand it be removed. We investors unfortunately on our NOO properties have to actually have to have the LTV paid down to below 80%. Good reason to consider a 10% owner piggyback with 80% conventional as opposed to 90% conventional. I think it was only last year they changed the law. SE
Broaker Scott,
You are correct, however on FHA loans the Mortgage Insurance is paid through the life of the loan, regardless of what the equity is. I just had to refi my FHA to a conventional loan to avoid this insurance. I was paying $44 per month and in January when I refi I got a refund from HUD for the unused portion of the premiums, $532.17. FHA loans can charge this MI till the end of the loan.
Ok I will agree with Scott that you may have a case to present to your lender once you make your 172nd payment on a (30yr) 360 payment loan to drop the MI. Of course that is 14.5 years into your loan.
Although the insurance protection concept is similar, there are differences between private mortgage insurance (PMI) and FHA mortgage insurance. FHA insurance (MIP) is a government-administered mortgage insurance program that does have certain restrictions and lasts for the life of the loan. By contrast, PMI is cancelable in most circumstances.
Conforming for investment props need 10% down and I averaged 6.5% last year on those. (Estates that needed cashout so no piggy back) Which puts it at just over 7 years to 80% LTV.
You and Don are taking two different approaches to obtain a PMI waiver.
Don is only looking at the loan itself and considering when the remaining balance falls below 80% of the original loan balance. When this happens, the lender is required take some action concerning PMI removal.
You are saying that the homeowner does not have to wait that long, if the house has also appreciated. The homeowner could ask that the lender order a new appraisal to determine that the loan balance is now less than 80% of the appraised value of the property. In this case, the lender will review the loan history and make a determination about whether to remove PMI.
In my own case, I purchased a foreclosure property for $51K. The appraisal came in at $63K. I used 90% financing to purchase the property, then did some rehab. Even though the acutal loan balance was always less than 80% of the appraised value, I paid PMI because my loan was more than 80% of my purchase price.
I immediately requested a PMI review, and the lender said that if I maintained a flawless payment history for 24 months, and a NEW appraisal showed the property had not declined in value, THEN I could request a PMI waiver.
Alternatively, I could accelerate my principal payments to bring my loan balance to 78% of the original loan amount. When this happens the lender will consider waiving PMI without the need for a new appraisal.
I waited out the two years, and requested that the lender reappraise the property to establish a new LTV. The new appraisal showed the property value at $85K. The lender waived the PMI beginning with the 25th monthly payment. If anyone is interested, the lender in this case was Countrywide.