Lorraine Ryall
A client of mine recently asked me to write an article about private mortgage insurance (PMI) and how to eliminate it.
When you purchase a home, whether you are a first-time homebuyer, or it’s your 10th home, it is important to know the different mortgage programs available to you and what options you have about private mortgage insurance. There are so many programs available that offer the buyer low down payments, but you need to know the facts and how each one works.
Buyers typically are required to pay private mortgage insurance if they purchase a home with less than a 20 percent down payment or refinance with less than 20 percent equity.
If you currently have a home loan that has PMI, you’ll first want to determine the loan type:
FHA
If the loan is FHA and opened after June 3, 2013, and you put down less than 10 percent, the mortgage insurance stays on the loan for the life of the loan. This means the only way to eliminate the mortgage insurance is to refinance into a conventional or VA home loan.
If the loan to value on your loan was 90 percent or less when you purchased or refinanced, your mortgage insurance will fall off automatically after 11 years.
Conventional
If the loan is a conventional home loan, there are a few different ways mortgage insurance can be eliminated:
- It automatically is cancelled once the loan reaches 78 percent loan to value (assumes payments have been made on time).
- If there have been substantial improvements made to the home, a large principal reduction made to the home loan, or the home has appreciated to the point that the loan to value is at 75 percent to 80 percent, there are options to remove mortgage insurance sooner than the automatic cancellation. The home loan servicer will likely require an appraisal, and the cost will be charged to the borrower. The servicer also will require that there haven’t been any 30-plus-day late payments on the home loan in the previous 12 to 24 months.
If you are going to purchase a new home, I recommend working with an experienced lender that can provide a cost comparison to show the financing options. While mortgage insurance on FHA is more difficult to remove, it also is a user-friendlier loan that is easier to qualify for and is less focused on credit score. In some cases, it is the only option for financing. In the case where you can qualify for both FHA and conventional home financing, however, a good lender can discuss the pros and cons of each approach specific to your scenario.
How Much Will PMI Cost
The chart shows some estimates on a conventional and FHA loan with varied down payments. They are all based on a purchase price of $350,000, a 5 percent interest rate and 30-year mortgage. It does not include any additional monthly fees, such as property taxes or homeowner’s insurance.
| Conventional | FHA | |
| Down Payment: 15% » $52,500 | ||
| Principal and Interest | $1,598 | $1,625 |
| Est. Mortgage Insurance | $50 | $211 |
| Monthly Payment | $1,648 | $1,836 |
| Total Loan Amount | $297,500 | $302,706 |
| Down Payment: 10% » $35,000 | ||
| Principal and Interest | $1,691 | $1,721 |
| Est. Mortgage Insurance | $100 | $224 |
| Monthly Payment | $1,791 | $1,945 |
| Total Loan Amount | $315,000 | $320,513 |
| Down Payment: 5% » $17,500 | ||
| Principal and Interest | $1,785 | $1,817 |
| Est. Mortgage Insurance | $147 | $236 |
| Monthly Payment | $1,932 | $2,053 |
| Total Loan Amount | $332,500 | $338,319 |
| Down Payment: 3% » $10,500 | ||
| Principal and Interest | $1,823 | $1,855 |
| Est. Mortgage Insurance | $199 | $241 |
| Monthly Payment | $2,022 | $2,096 |
| Total Loan Amount | $339,500 | $335,441 |
Knowing your options before you start looking for homes will save you time and could save you money by not paying for PMI if there are other options available to you. My preferred lender is available to help guide you through the loan process and explain your loan options to find the right one for you. If you have an existing loan with PMI, Kelly’s team can work with you to get it cancelled.
If you have any questions, or for more information on private mortgage insurance or purchasing a home, please don’t hesitate to contact me.
Lorraine Ryall has been a Multi-Million Dollar producer for the past nine years. If you are thinking of buying or selling, and you would like more information or a Free Home Value, please contact me at Lorraine@Homes2SellAZ.com, or call (602) 571-6799. Visit my website at Homes2SellAZ.com.