Can a New Appraisal Eliminate PMI?

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PMI, or Private Mortgage Insurance, is a type of insurance that protects lenders if a borrower defaults on their mortgage. It’s typically required for conventional loans with a down payment of less than 20%. However, did you know that you might be able to eliminate PMI by getting a new appraisal?

How does PMI work?

PMI is an extra cost added to your monthly mortgage payment. The precise cost of PMI can add hundreds of dollars to your monthly housing expenses, and it varies based on factors such as your loan-to-value ratio (LTV) and credit score.

How can a new appraisal help me get rid of PMI?

You might be able to eliminate PMI if the value of your house has increased since you purchased it by obtaining a new appraisal. This is so because PMI is determined by dividing your loan balance (LTV) by the current value of your residence. Your LTV will drop if the value of your house has increased, and you might be able to cancel PMI.

What are the requirements for getting PMI removed with a new appraisal?

The specific requirements for getting PMI removed with a new appraisal will vary depending on your lender. However, most lenders will require the following:

  • Your LTV must be below 80%.
  • You must have made all of your mortgage payments on time for the past 12 months.
  • You must have a current appraisal that shows the value of your home.

How do I get a new appraisal?

You can get a new appraisal by contacting a licensed appraiser in your area. The appraiser will visit your home and assess its value based on factors such as its size, condition, and location. The appraisal will typically cost a few hundred dollars.

Is it worth it to get a new appraisal to eliminate PMI?

If you think your home’s value has increased and you’re paying PMI, it’s worth considering getting a new appraisal. The cost of the appraisal will be offset by the savings you’ll see on your monthly mortgage payments once PMI is removed.

Here are some additional things to keep in mind:

  • Even if your home’s value has increased, your lender may not automatically remove PMI. You may need to request that it be removed.
  • Some lenders may require a second appraisal if the first one is older than a certain amount of time.
  • If you’re considering refinancing your mortgage, you may be able to get PMI removed as part of the refinancing process.

Here’s an example to illustrate how a new appraisal can help you eliminate PMI:

Let’s say you bought a home for $200,000 with a 10% down payment. This means you took out a mortgage for $180,000. Your LTV at the time of purchase was 90% ($180,000 / $200,000).

A few years later, the value of your home has increased to $250,000. You decide to get a new appraisal, which confirms the increased value. Your LTV is now 72% ($180,000 / $250,000).

Given that your LTV is less than 80%, you are qualified to have your PMI withdrawn. This could save you hundreds of dollars per month on your mortgage payments.

Speak with your lender if you’re unsure if obtaining a fresh appraisal will enable you to eliminate PMI. They will be able to assist you in getting started and provide you with the precise requirements.

Here are some additional resources that you may find helpful:

Wait for PMI to automatically cancel

When the loan balance reaches or falls below 2788% of the home’s appraised value, PMI automatically cancels conventional loans. This is called “automatic cancellation. Your mortgage lender must legally cancel PMI on your loan at no cost to you.

Although you should not have to do anything to initiate automatic cancellation, it is always a good idea to take proactive measures. You can request a copy of your PMI cancellation schedule from your lender. You’ll know the exact month that your PMI should disappear from your mortgage payment.

What does PMI cover?

PMI is designed to protect the lender, not the borrower. The PMI will compensate the lender in the event that the borrower is unable to make mortgage payments and the home enters foreclosure. Depending on the exact terms of the policy, PMI may pay all of the outstanding balance or just a portion of the loan.

Even though PMI increases the cost to the buyer, it still gives those who might not have a sizable down payment the chance to buy a property.

However, keep in mind that PMI is not the same as homeowner’s insurance. It does not cover property damage, homeowner’s fees, or problems such as job loss. Furthermore, PMI does not absolve the borrower of their obligation to pay their mortgage.

Get Out Of PMI | Appraisal For PMI Removal

FAQ

Can I get a new appraisal to remove PMI?

Get a new appraisal to remove PMI You can request early PMI cancellation based on the home’s current value if, like most conventional loans, Fannie Mae or Freddie Mac backs your mortgage. Fannie and Freddie are the government-sponsored enterprises that purchase mortgages from lenders.

Can I get PMI removed if home value increases?

If home values have gone up in your area or you’ve made a lot of improvements to your home, you could have more than 20% equity based on the home’s current value. Providing the loan-to-value ratio with a new appraisal value meets the lender’s requirements, you may be able to get PMI taken off.

Can I get rid of PMI without refinancing?

Yes. Even if you don’t ask your servicer to cancel PMI, in general, your servicer must automatically terminate PMI on the date when your principal balance is scheduled to reach 78 percent of the original value of your home. For your PMI to be cancelled on that date, you need to be current on your payments.

Does appraisal value affect PMI?

The amount you pay in PMI is a percentage of your principal mortgage loan amount. It is not impacted by appraisal. However, if your home increases in value to the point that you have gained substantial equity, a home appraisal will help prove to your lender that you qualify for PMI removal.

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