How to Get Rid of PMI Right Now • 2022 • Benzinga

What is PMI?

Private mortgage insurance (PMI) is a type of insurance that conventional mortgage lenders require when homebuyers put down less than 20 percent of the home’s purchase price.

PMI is designed to protect the lender in the event that the homeowner defaults on the loan. While it doesn’t protect the homeowner from foreclosure, it does allow prospective homebuyers to become homeowners even if they can’t afford a 20 percent down payment. If your lender determines you’ll need to pay PMI, it will coordinate with a private insurance provider, and the terms of the insurance plan will be provided to you before you close on your mortgage.

If you’re paying for PMI, that cost won’t stay with you forever. Once you’ve reached 20 percent equity — either through paying down your loan balance over time or through rising home values — you can contact your loan servicer about removing PMI from your mortgage. Servicers must terminate PMI on the date that your loan balance is scheduled to reach 78 percent of the home’s original value.

Video

How To Get Rid Of PMI

It is crucial to understand the different ways you can get rid of PMI, as this information will save you money in the long run. Homebuyers will typically need to reach out to their mortgage lenders to start the process, which can be done once you reach 20 percent equity in the home. It’s always smart to keep an eye on the payments made toward a mortgage, and once enough equity has been placed in the property, homeowners can begin saving money on PMI payments. If you made extra payments to the principal, you might be eligible to get rid of PMI sooner. In this case, you would still need to notify your lender to have the payment removed.

Homebuyers can also get rid of PMI if the value of the property increases and they reach more than 20 percent equity in the home. There are two ways this can happen. First, property values could increase to where you have more equity in the home. Second, certain renovations could increase the value of the property, increasing your overall equity. In these cases, you will need to coordinate with your lender to determine the new property value.

Mortgage loan products at SunTrust mortgage

As you’d expect from a big bank, SunTrust Mortgage has a pretty comprehensive portfolio of products.

Although it caters to virtually all borrowers, it does seem especially welcoming of those who have limited down payments. These options tend to be good for first-time buyers.

SunTrust’s mortgage loan products include:

  • Fixed-rate mortgages (FRMs) — Choose to secure your mortgage rate for the entirety of the loan, which can last 30 years or a shorter 10, 15, or 20
  • Adjustable-rate mortgages (ARMs) — You can fix your rate for the first five, seven or 10 years of your loan. After that, your rate will float with the market
  • Jumbo loans — For those who need to borrow above the cap for conventional loans, which is currently $ in most areas
  • FHA loans — A government-backed program that lets you make a 3.5 percent down payment and has looser credit requirements
  • VA loans — Zero-percent down payment and other benefits for service members and veterans who qualify
  • USDA loans — Zero-down payment for eligible homes in designated rural and suburban areas. You must have a low or moderate income to qualify
  • Doctor Loan Program — Zero-down payment and other benefits for eligible dentists, physicians, and licensed residents/interns/fellows

SunTrust also offers both HomeReady and Home Possible mortgages.

These two home loan programs, backed by Fannie Mae and Freddie Mac, let buyers qualify with as little as three percent down. They’re meant to be accessible for lower-income buyers and families.

All told, SunTrust has a wider range of mortgages than many competitors. It might turn out to have home loan options for people who have trouble qualifying elsewhere.

SunTrust home equity loans

SunTrust does not appear to offer home equity loans. But the company does offer home equity lines of credit (HELOCs).

SunTrust home equity lines of credit are available from $10,000 to $500,000, with a 10 year “draw period.” (The draw period is the amount of time you can borrow from the HELOC before you pay it back in full.)

If you’re already a SunTrust customer, you might be eligible for a 0.25% lower HELOC rate than non-SunTrust customers.

As opposed to a home equity loan (which is a one-time lump sum) a HELOC is a rotating line of credit that you can borrow from and pay off on an ongoing basis.

A HELOC works a little like a credit card, but secured against your home. The amount you can borrow depends on your home equity and your credit score. And you can only borrow from a HELOC for a set time period (the draw period) before you must pay it back in full.

How do I get rid of PMI?

To get rid of PMI with SunTrust, you must have at least 20% equity in your home. Put otherwise, your loan-to-value ratio needs to be at 80% or lower.

That’s the rule for requesting to cancel PMI (private mortgage insurance) on conventional loans from any lender. Keep in mind, though, that by law, lenders don’t have to cancel your PMI until you reach 22% equity.

If you want to cancel FHA mortgage insurance (MIP), you still need 20% equity. But you’ll also have to refinance into a conventional loan without PMI to actually get rid of your insurance. That’s because all FHA loans require mortgage insurance, regardless of loan-to-value ratio.

To cancel SunTrust PMI, you can send a written request to the bank once your loan reaches 20% equity. You’ll need to be up-to-date on your mortgage payments.

And you’ll also need a new appraisal — which you have to pay for. But a new appraisal is often in the homeowner’s benefit, because rising home prices can push your equity up to 20% before you’ve actually paid off that much of the loan.

Alternatively, when you reach 22% equity, your conventional PMI should fall off automatically.

To cancel FHA MIP, talk to SunTrust about your options for refinancing into a conventional loan without mortgage insurance.

Note that you can refinance to remove PMI with any lender. You don’t have to use the lender that holds your current FHA loan.

How Much Does PMI Cost?

The exact price you pay for PMI will depend on a variety of factors such as your FICO® Score, down payment amount, and loan type. But according to Rocket Mortgage, it will typically cost you 0.50% to 1% of your loan amount each year. So for a $250,000 mortgage, that translates to an annual cost of $1,250 to $2,500.

PMI premiums are usually paid monthly by being added to your mortgage payment along with other costs such as your property taxes and homeowner’s insurance premiums. In this way, a $1,500 annual premium would add $125 to your monthly mortgage amount.

Related: How to Reduce Your Mortgage Insurance Costs

How To Avoid PMI Insurance

In addition to canceling PMI, it’s also possible to completely avoid paying mortgage insurance from the start of your loan. Here’s how to eliminate the need for extra monthly payments.

Make A 20% Down Payment

The easiest way to skip PMI from the start is to make a large down payment. By making a 20% down payment on a conventional loan, your LTV will automatically be 80%, allowing you to pay your loan without mortgage insurance.

Get A VA Loan

Among all of the loan types available, VA loans are the only type that don’t require mortgage insurance regardless of your down payment. Instead, borrowers are required to pay an upfront funding fee. This fee helps to offset the cost of administering the loan. This helps to ensure that VA loans continue to require no down payment and no monthly mortgage insurance.

A few types of clients are exempt from the VA funding fee:

  • Anyone currently receiving VA disability payments
  • Eligible surviving spouses receiving Dependency Indemnity Compensation (DIC) benefits
  • Active-duty Purple Heart recipients

Another option worth considering is PMI Advantage. Rocket Mortgage allows you to buy a home without having to put 20% down and without having to pay a monthly mortgage insurance payment. With PMI Advantage, you’ll accept a slightly higher mortgage rate and eliminate monthly mortgage insurance payments. While this option still requires PMI on your home, it removes the monthly premium that you would otherwise have to pay.

The Bottom Line On Getting Rid Of PMI

PMI is a type of insurance that protects your lender if you default on your loan – but it gives you no protection as the buyer other than the freedom to make a smaller down payment. As you build up equity in your home, you may be able to cancel your private mortgage insurance so you can save money each month.

If you have a conventional loan and have built up 20% equity in your home, contact your lender and see if they can cancel your mortgage insurance as soon as possible. If you have an FHA loan or have a mortgage with lender-paid mortgage insurance, you’ll need to refinance your loan to ditch those insurance payments for good.

If you’ve hit 20% equity and are looking to refinance, you can apply today with Rocket Mortgage® and say goodbye to your PMI.

Best Mortgage Lenders for Refinancing

Looking for the best mortgage lender for refinancing? Here are Benzinga’s recommendations. 

More Details Avg. Days to Close Loan 30Minimum Credit Score 580securely through Rocket Mortgage’s website More Details More Details Avg. Days to Close Loan 15Minimum Credit Score 620securely through Figure Refinance’s website More Details More Details Avg. Days to Close Loan 30 – 45Minimum Credit Score 600More Details Please see Credible’s State and License Disclosures.

Is PMI tax-deductible?

The government reinstated the ability to deduct private mortgage insurance premiums from your taxes in 2020. That benefit is available again in 2021; however, the benefit begins to phase out after your adjusted gross income reaches $100,000. You should determine if itemizing your deductions and including your PMI is greater than taking the standard deduction.

Removing PMI

If you’re paying for PMI, you can ask for it to be removed when your mortgage balance is 80% or less of the original value of your home. You can make extra payments to pay down your balance sooner — just make sure to let your lender know you want the extra payments to go toward your principal. Otherwise your extra payment could be credited toward your next payment. 

Another way to think about it is that you can ask your lender to remove your PMI when you have 20% equity in your home. Your home equity is the difference between your home’s value and the amount you owe on your mortgage. 

You can increase your equity by making payments or by your home increasing in value. If you reach 20% equity due to your home value increasing, your lender may not remove your PMI until your mortgage balance reaches 80%. This is because PMI removal is based on the original value of your home, which can either be the appraised value of your home when you purchased it or the sales price — whichever is lower. Some lenders may be flexible, though, so it doesn’t hurt to ask.

Let’s say when you bought your home, it was appraised for $150,000. You made a 10% down payment of $15,000, so your loan balance is $135,000. You can request that PMI be removed when your mortgage balance reaches $120,000. Even if your home value jumps and gives you more than 20% equity, you may still have to wait until your mortgage balance is 80% or less of the original value. 

To have your lender remove your PMI, you must make the request in writing. You also need to be up-to-date on your payments and have a good payment history. Your lender may request an appraisal to confirm your property hasn’t decreased in value. 

If you don’t ask to have PMI removed, your lender is required to remove it when your mortgage reaches 78% of the original value of the home. 

Bottom Line

Private mortgage insurance is a great choice if you plan on making a smaller down payment. But the potential downsides of PMI tacking on an additional cost to your already pricey mortgage endeavor could prove to be rather disheartening.

Even if you do need PMI, don’t worry – it doesn’t last forever. The fact that you’ll be able to cancel your policy upon arriving at 20% equity in your home is a very reachable “light at the end of the tunnel.” Just bide your time and continue to make punctual and complete monthly mortgage payments.

When Does BPMI Go Away?

You must pay BPMI until you have 20% equity in your property. Equity refers to the percentage of your principal or mortgage balance that you’ve paid off. For example, let’s say you borrow $100,000 to buy a home and you pay off $30,000 of principal. This means you have 30% equity in your home.

Keep in mind that payments that only go toward your principal balance count toward your equity. Paying interest doesn’t help you build equity. Contact your lender and request a mortgage statement if you don’t know how much equity you have. Many lenders also make this information available to you online.

You can contact your lender and request that they cancel your BPMI once you’ve built 20% equity in your home. Many lenders will automatically do this once you reach 22% equity.

How To Speed Up The Process

You may want to make extra payments on your loan if you want to stop paying for PMI as soon as possible. Your money can go directly to reduce your principal balance when you make an extra payment, but you have to tell your lender specifically that’s where you’d like it credited. Many lenders will automatically apply extra money toward next month’s payment instead.

Additionally, if you’re planning on making extra payments with the express goal of getting rid of PMI, be sure to talk to your lender. Some types of loans don’t allow you to make payments ahead of time for the purpose of mortgage insurance removal.

When is mortgage insurance required?

Generally required if you put down less than 20% o

  • Generally required if you put down less than 20% on a home purchase
  • Or if you lack 20% home equity for a mortgage refinance
  • Not all banks and mortgage lenders explicitly charge it (some waive it or build it into your interest rate)
  • It is required for all FHA loans regardless of down payment or LTV

Borrowers who take out conventional loans (those not guaranteed by the government) and are unable or unwilling to come up with a 20% down payment must pay private mortgage insurance to obtain a mortgage.

This is similar to the mortgage insurance premium (MIP) paid by borrowers on FHA loans, though PMI is referred to as private because it doesn’t involve a government loan.

Rather, it tends to involve loans backed by Fannie Mae and Freddie Mac (conventional mortgages) and a private mortgage insurance company.

It is required by the bank or lender providing financing if the loan-to-value, or LTV, is greater than 80%. So those who fail to come up with a 20% down payment are stuck paying PMI.

Like other forms of insurance, you pay a premium for PMI coverage, which is often bundled into your mortgage payment (this is in addition to homeowners insurance).

For the record, some lenders may tell you that mortgage insurance isn’t required even if your LTV is above 80%, or that they don’t charge it.

But it’s likely just factored into the (higher) interest rate you receive. So you’re still paying for private mortgage insurance in these cases, just not directly.

To give you an example, if your mortgage rate were 4%, and you’re told you can avoid PMI at a rate of 4.25%, it’s still being paid for by you, just via higher monthly mortgage payments.

4. PMI: Guide To Private Mortgage Insurance

FHA loans require their own mortgage insurance, though the rates can be lower than PMI. However, you won’t have an option to cancel the (9)

Refinancing is the only option for getting rid of PMI on most government-backed loans, such as FHA loans. You’ll have to refinance from a (10)

Remove Private Mortgage Insurance – Umpqua Bank

You can request to have PMI removed from your loan when your balance reaches 80% loan-to-value (LTV) based on the original value (the sale price or appraised (11)

While a 20% down payment is the best way to avoid paying PMI, there is another way. This involves taking out two loans at the same time. Often called a (12)

The Homeowners Protection Act has one final option to remove PMI. If for some reason PMI was not canceled by request or automatic termination, the loan servicer (13)

Compare to These Lenders

Learn More

Minimum down payment: 3%Minimum credit score: 620

Learn More

Minimum down payment: 0%Minimum credit score: 550

Learn More

Minimum down payment: 3%Minimum credit score: 580

Tags