If you’re a homebuyer who can’t avoid PMI, or private mortgage insurance, you probably feel like it’s one more obstacle standing between you and your dream of home ownership.
But don’t lose hope! There are several ways to get rid of PMI once your home equity reaches a certain point.
What is Private Mortgage Insurance (PMI)
Private mortgage insurance (PMI) is a type of mortgage insurance that protects the lender in case you default on your mortgage. According to Freddie Mac, the average PMI payment ranges from $30 to $70 for every $100,000 you borrow.
Private Mortgage insurance (PMI) , is not permanent.
Here’s how it works:
If you put down less than 20% at the time of purchase, you’ll likely be required to pay for private mortgage insurance (PMI). Once your equity reaches 20% or more, however, you can apply to have this coverage removed by sending in an application with supporting paperwork—like your most recent statement showing that your loan balance has been reduced significantly.
Reaching 20% equity by paying down the mortgage balance on your home can take anywhere from 5-10 years. There’s a quicker way!
Here’s how to remove the PMI
Removing private mortgage insurance is a great way to save money and get back your peace of mind. It’s also a great way to increase your home equity.
First, keep an eye on the homes selling in your area. When the market value of your home has gone up so has the equity. In the past couple years, many areas have seen significant increases in property values. If your home’s value has increased enough to bump you out of PMI range, then it’s time to talk to your lender about getting a new appraisal and potentially canceling your PMI requirement.
Second, consider adding some upgrades or renovations to increase the value of your home. This could mean adding an extra room, installing replacement windows or renovating the kitchen. You can also improve curb appeal with landscaping or other exterior improvements.
Invest in the Appraisal – but only if it makes sense
One of the best ways to get out of that private mortgage insurance (PMI) is to make sure the appraiser sees all of the upgrades in your home – and it’s okay to point them out!
An appraisal is a detailed evaluation of your home’s value, and there are a lot of factors that go into determining how much your home is worth. An appraiser will look at several features when assessing a home, including its size, location, and condition. But one factor that can really affect how much your home is worth is whether or not the appraiser sees the upgrades you worked so hard on.
The key is getting the appraiser to come inside and take a look around!
Appraisals for a single-family home typically cost between $250 and $500, depending on your area.
Before ordering the appraisal, talk to your lender about how much PMI you have left to pay. It’s important not to order an appraisal if your remaining balance is small—for example, if you only have $200 left in PMI, it may not be worth paying $500 to get an appraisal done.
Removing PMI can save you hundreds of dollars every month and potentially a lot more in the long term if you ever sell. It’s a painless way to make your house more valuable than it was before. Get in touch with your mortgage lender to see what options is quickest and best for you!
