If you bought a home in 2020 or earlier and you're still paying private mortgage insurance, this post is for you. The question I'm answering here: how do you know if you can get rid of PMI now, and why should you check today instead of waiting?

I'm a mortgage loan officer, and I've been seeing a lot of homeowners sitting on PMI they don't need to pay anymore. Here's why.

Home values have jumped a lot since 2020

According to macrotrends.net, here's how home prices appreciated on average in the US:

  • 2020: +6.27%
  • 2021: +18.01%
  • 2022: +10.79%

If you bought pre-2020 on a conventional loan, you need to look at cancelling your mortgage insurance payment.

"But I thought it automatically cancels"

It does. And if you've been asleep at the wheel, it may have already cancelled depending on when you took your loan out.

It automatically cancels at 78% LTV (22% equity) based on the original value.

Original value means the value BEFORE the inflation shock of 2020 to 2022.

Homeowners can take advantage of this housing inflation by requesting (probably via an archaic snail mail process) that their mortgage servicer remove the mortgage insurance.

How to request PMI removal

If you request it, the process looks like this:

  1. The lender or servicer assigns an appraiser.
  2. The appraiser appraises the home.
  3. If you have 20% equity on the new value, they drop the mortgage insurance from your mortgage payment.

Some lenders and servicers have a 2 year requirement before they'll allow this, but exceptions might be made with lump sum payments.

Want to see what dropping PMI would actually do to your monthly payment? Run the numbers with the calculator at /payment.html.

"But I thought FHA loans require PMI for life?"

First, FHA calls it by a different name: MIP (grammar police here).

Second, if you put 10% down or more, you will eventually see mortgage insurance drop off by the 11 year mark. You don't request removal on this one, it just happens.

Third, the other option is to refinance out of it. But we all know you aren't touching that 2.25% interest rate just to remove mortgage insurance.

If you're a VA loan homeowner

Don't sweat this one. You don't have PMI, MIP, or annual fees.

Why I say "asap"

If your first mortgage is at 80% or less of today's values, then you might as well do it. The upfront cost of the appraisal will be made up over a few months of savings.

I don't think the sky is falling and I don't think home values are crashing (local markets fluctuate, but I'm speaking broadly). But you should lock in savings when you see them.

Hopefully this helps first time buyers review their options, especially if they didn't put 20% down either. If you want to walk through your specific situation, grab a free planning session with me at /planning.html.

-Sam

Bought Your Home Before 2020? Check Your PMI Now
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Originally shared by u/SamTMortgageBroker in r/NewbHomebuyer — view the original thread.