OK, you have been in your home for a while and when you bought it you put less than 10% down. You know that your value has gone up rather nicely and you should have 20% equity in the home now. After checking the website or receiving an email from Zillow, Redfin or one of their competitors you figure it’s time to get rid of PMI. For you as a borrower there are three ways to remove the PMI. You just have to figure out which one is best.
First, you have a date, in your original loan documents, on which you will have paid the loan down to 78% of the value at the time at which you had purchased your home. Check this date first. It may be worth waiting until that date as your PMI is supposed to automatically be dropped at this time. If that date has passed, it’s time to contact your servicer (the company you make your payment to every month) to get them to remove it. If the date has not passed, then figure out if it will be worth waiting for the date to arrive as the other options will cost time and money.
The second path to PMI removal requires not just calling your lender but working with them. If you have not passed the automatic removal date, then working with the servicer to evidence your equity position could be a solution. There are a few pitfalls here though. First, you usually have to have the PMI in place for 2 years before they will consider it. Second, to work with them to remove it, you will have to pay somewhere between $300 and $500 for a current appraisal. The key issue there is that the appraisal ordered by the lender at your expense. Since that appraiser is usually receiving ongoing business from your lender/servicer, they may not go to bat for your highest value. In no way should you assume the deck is stacked against you, but you are likely to receive a fairly conservative interpretation of the value (lowest reasonable value) rather than an optimistic, positive spin.
The third option is to try to stack the deck in your favor by getting rid of your PMI through refinancing into a new mortgage. The biggest positive using this technique is that the lender who is originating your loan likely has a working relationship with the appraiser. This MAY get your property value viewed in its most positive light. Though the lender cannot steer the appraiser to a figure. On the negative side of the ledger removing PMI this way is that it you could spend the entire cost of refinancing rather than just an appraisal fee. Additionally, interest rates are higher than they have been the last few years so you may lose in rate what you gain in PMI removal.
Which way is best for you? That cannot be answered by a quick blogpost. Every situation is unique. Contact us today for a complimentary consultation on your PMI removal situation.
