Getting Rid of PMI – Not Always Simple

by Rich Martin on April 27, 2012

Dumping Private Mortgage Insurance is supposed to be straightforward. After you’ve paid your loan down so your equity is at least 20%, it’s possible to get rid of it.

Private mortgage insurance (PMI) is what you pay if you if you’re putting down less than 20% when purchasing a home. Loan companies are worried that if you default on a loan and they need to foreclose they may struggle to sell the distressed property for enough to get their cash back. With 20% down, they feel comfortable. Less than 20% down though and they insist on insurance, that will help them if you quit paying.

In principle PMI can be stopped after you have paid down 20% of the value of your home. Now, this doesn’t suggest you have to pay off 20% of the principal amount of the loan. It is 20% of the vaue; the appraised value. Again, it’s not 20% of the loan; not 20% of your tax assessor’s value; not 20% of what you “think” the house is worth.

This means you must pay for an assessment. The bank won’t pay for it, they are pleased to keep collecting the fee.I am a Houston Heights Realtor. Here in Harris County, expect to pay $350 for an appraisal. You may get it cheaper, and if you are in a uniform subdivision (homes similar in size, price, age of construction a d updates) this may be OK. But if you are in an area with a wide range of updates, or good bad and ugly parts of the neighborhood don’t go cheap. Find someone familiar with the area, not someone picked by chance.

If you are on good terms with a realtor (the one you purchased the house from?) ask him/her to give you a quick estimate of value. If you owe less than 80% of his market price estimate, then call your lender and ask about getting an appraisal. You may have to hire an appraiser on their authorized list, so get their blessing first.

The real estate market is still screwy. Some areas are appreciating in value again, while others are still going down. If your values are going down, remember that the bank wants an 80% loan to value before releasing the PMI. Even if you’ve paid the loan down to 80% of original sales price, if appraisals are going down, you’ve got to get your loan below 80% of the new (lower) price.

A little confusing, I know. You can always ask your realtor for advice.

Rich Martin is a broker/associate with Better Homes & Garden Realty in Houston TX. He sells in older, close-in neighborhoods such as Houston Heights Homes. These are are turn of the century houses, or new construction homes built in a period style. Rich also sells mid century ranch style homes in close in areas like Garden Oaks, Oak Forest, Lindale Park. Oak Forest Homes are extremely popular today and are in demand when totally renovated.

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