Question 1

What is PMI (Private Mortgage Insurance) and when can it be removed?

Accepted Answer

PMI is insurance that protects lenders when borrowers make down payments of less than 20%. It can typically be removed when you reach 20% equity in your home (22% for borrowers with poor payment history). For conventional loans, PMI automatically terminates at 22% equity based on the original loan amount, or can be requested at 20% equity with good payment history.

Question 2

How do you calculate PMI removal eligibility?

Accepted Answer

PMI removal eligibility is calculated by determining your current equity percentage: (Home Value - Loan Balance) / Home Value × 100. For conventional loans, you need 20% equity with good payment history or 22% equity regardless of payment history. The calculation also considers loan type, payment history, and lender-specific requirements.

Question 3

What are the PMI removal requirements for different loan types?

Accepted Answer

Conventional loans: 20% equity with good payment history, or 22% equity automatically. FHA loans: PMI cannot be removed on the original loan - you must refinance to a conventional loan. USDA loans: Similar to FHA, requires refinancing. VA loans: No PMI required. Each loan type has specific requirements and timelines for PMI removal or elimination.

Question 4

How much can you save by removing PMI?

Accepted Answer

PMI typically costs 0.3-1.5% of the original loan amount annually. For a $300,000 loan at 0.5% PMI rate, you'd pay $1,500 annually or $125 monthly. Removing PMI can save hundreds of dollars monthly, depending on your loan amount and PMI rate. The savings continue until you sell or refinance the property.

Question 5

Can you remove PMI early by making extra payments?

Accepted Answer

Yes, making extra principal payments can help you reach the 20% equity threshold faster. Calculate how much additional payment is needed by determining the gap between your current equity and the required 20% threshold. Extra payments directly reduce your loan balance and increase your equity percentage, potentially saving months or years of PMI payments.

Question 6

What documents are needed to request PMI removal?

Accepted Answer

To request PMI removal, you typically need: written request to your lender, current appraisal or broker price opinion (BPO), payment history showing no late payments in the past 12 months, and proof of property condition. Some lenders may require additional documentation or have specific forms to complete the PMI removal process.

Question 7

How does home value appreciation affect PMI removal?

Accepted Answer

Home value appreciation increases your equity percentage without requiring additional payments. If your home value increases from $400,000 to $450,000 and your loan balance remains $320,000, your equity increases from 20% to 28.9%, potentially making you eligible for PMI removal. However, lenders typically require a formal appraisal to confirm the new value.

Question 8

What happens if your home value decreases?

Accepted Answer

If your home value decreases, your equity percentage may drop below the PMI removal threshold. This could delay PMI removal eligibility. However, PMI removal is typically based on the original loan amount for conventional loans, so temporary market fluctuations may not affect automatic PMI termination at 22% equity based on the original amortization schedule.

Question 9

Can you remove PMI on an FHA loan?

Accepted Answer

FHA loans with down payments less than 10% have lifetime PMI that cannot be removed on the original loan. FHA loans with 10% or more down payment have PMI for 11 years. To remove PMI on an FHA loan, you must refinance to a conventional loan once you have sufficient equity (typically 20%). This requires qualifying for a new loan and paying closing costs.

Question 10

When does PMI automatically terminate?

Accepted Answer

For conventional loans, PMI automatically terminates when you reach 22% equity based on the original loan amount and amortization schedule, regardless of payment history. This happens automatically - no action required from you. You can also request PMI removal at 20% equity if you have good payment history and meet other lender requirements.

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