If you signed up with an FHA approved lender who contacted you through FHA leads, to help you buy your home, you must be paying for mortgage insurance. Even conventional mortgages would require you to buy mortgage insurance if the down payment you make is less than 20 percent.
Private mortgage insurance or PMI is a price that you pay to reduce the risk of the lender who offers you the mortgage at a lower down payment. It is one of those additional charges that can hit you the hardest, over the long run. Nevertheless, the good news is that you can remove it if you meet certain conditions.
Generally, you will be able to get your PMI canceled once you hit the 20 percent threshold. This means your mortgage balance has to drop to 80 percent of your property value. However, at times the lender may ask for a formal appraisal of your house before he can cancel your PMI. There is no telling how long this can take.
By way of mortgage insurance premium, you will have to pay anywhere between 0.3 and 1.5 percent of your original loan amount every year. So if you have taken out a $200,000 mortgage at a 1 percent PMI rate, the annual PMI that you have to pay will amount to $2000. However, this might depend on your credit rating and the size of your original down payment. Your lender will have to automatically eliminate your PMI once you have built 22 percent equity on your home or when your mortgage balance drops down to 78 percent of your property value.
If you have taken out an FHA loan through a lender who had come to you through FHA leads, you won’t be able to cancel your PMI even after achieving the 22 percent equity cushion. Your only option then would be to refinance your FHA loan into a non-FHA loan.
Here are a few ways you can choose from if you want to cancel your PMI sooner:
Refinancing your loan
Refinancing your mortgage is an excellent way to get rid of your mortgage insurance. However, a lot depends on your home value and your ability to pay back the loan.
Getting a new appraisal
If you are ready to spend $450 to $600 you can easily find out if you have met the 20 percent equity threshold. All you need to do is to get a new appraisal done. Nevertheless, before hiring the appraiser, make it a point to find out from your lender if this tactic will help you in getting rid of your PMI.
Prepaying on your loan
Making those little extra payments on your loan can result in a dramatic drop in your overall loan balance over time. So make it a point to at least pay an extra $50 per month towards the repayment of your loan.
Remodeling your home
You can easily increase the market value of your home by adding a pool or a room to it. Your lender can then use the new value figure to recalculate your loan-to-value ratio and decide on canceling your PMI.
Of all the methods to cancel your PMI, the best and the fastest one seems to be refinancing. Not only will you be relieved of paying your PMI, you will also be able to reduce your monthly interest payments, resulting in a lot of savings. However, before you sign up with any of the mortgage refinancers who come to you through FHA leads, make sure your home has substantially increased in value. Generally, it is advisable to wait for a minimum period of two years before refinancing your mortgage if you wish to get rid of your PMI.