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 Eliminating Private Mortgage Insurance
For loans made after July 1999, lenders are required by federal law to automatically cancel Private Mortgage Insurance (PMI) when the loan balance falls below 78 percent of your purchase price — not when you achieve 22 percent equity, which will happen much more quickly with rising property values. (Certain "higher risk" loans are excluded.) But you have the right to cancel PMI (for loans made after July 1999) once your equity reaches 20 percent, regardless of the original purchase price. This involves calling up your mortgage servicer and ordering an appraisal to prove what you are saying.
Originally called Preston Martin insurance, named after the former Vice Chairman of the Federal Reserve, lender placed mortgage insurance is insurance paid by the borrower designed to protect the interest of the lender. If you think about it, it should be illegal, but in a way if helps lenders lend, and it helps buyers get into homes they otherwise could not afford. What nobody likes is the monthly fee. FHA requires a lump sum that is financed as well as a monthly fee where Fannie Mae/Freddie Mac require a larger monthly fee without the lump sum.
Keep track of your principal payments. Also keep track of what other homes are selling for in your neighborhood. If your loan is under five years old, chances are you haven't paid down much principal — it's been mostly interest. But property values in many parts of the country have gone through the roof lately. And that can earn you 20 percent equity even if you haven't paid down much principal. When you think you've reached 20 percent equity in your home, you can begin the process of freeing yourself from PMI payments! You will need to notify your mortgage lender that you want to cancel PMI payments and you'll need to submit proof that you have at least 20 percent equity. A state certified appraisal on the appropriate form (URAR- 1004 uniform residential appraisal report for single family homes) is the best proof there is — and most lenders require one before they'll cancel PMI. Refinancing a Mortgage Loan that has Private Mortgage Insurance As seen on Huliq.com http://www.huliq.com/1/87849/refinancing-mortgage-loan-has-private-mortgage-insurance Everybody hates private mortgage insurance or PMI. Some say it should be illegal. Mortgage insurance is a fee that the customer pays to protect the interest of the lender. Typically any loan that is more than 80% loan to value of the house will have private mortgage insurance attached to it. Witnessing what has occurred in the mortgage world over the last few years it seems more justified that lenders can charge a premium for loans with little or no equity. A conventional loan with Fannie Mae or Freddie Mac requires a 680 credit score to get mortgage insurance. FHA requires a 620 credit score but in some cases there are programs that will accommodate a lower score. Mortgage insurance on conventional loans can be charged monthly, paid as a lump sum, or lender paid where the mortgage insurance is factored into the interest rate. (Known as tax advantage mortgage insurance or TAMI) FHA charges a lump sum premium financed into the loan as well as a smaller monthly charge. The most common way to remove conventional mortgage insurance is when the mortgage balance gets to be 78% of the value of the home. The borrower calls up his or her lender, does an appraisal, demonstrates the equity and has the PMI removed. Quite often I am approached by customers who are looking at the Fannie Mae DU Refi Plus or the Freddie Mac Home Relief refinance programs but are unsure how the PMI affects the picture. These are two excellent programs that allow homeowners to lower their rate even if they have no equity left. If the customer had mortgage insurance previously there is a chance that the new loan will not call for mortgage insurance the second time around. It’s up to the investor and the findings. Every loan approved nowadays is run through an automated underwriting engine. Fannie Mae calls theirs “DU” and Freddie Mac calls theirs “LP”. In addition, individual lenders have “overlays” to the findings so they can filter out the risky loans they don’t want. Through my experience I have found that customers who had lender paid insurance or lump sum insurance previously will be required to keep mortgage insurance in place with these programs. That means the maximum financing we can do for them through a conventional program is 90% rate and term refinance or 80% cash out refinance. Customers who initially did 90% financing or less have a chance that the findings will not ask for mortgage insurance the second time around. Mortgage holders who initially financed 90.1% to 100% generally will be required to get PMI again. Since Fannie Mae/Freddie Mae cannot accommodate high loan to values with PMI, we turn to FHA for these customers. FHA can still provide a 97% rate and term refinance or 85% cash out refinance with mortgage insurance. When in doubt, run the deal on line to check the findings first. On larger loans, the lender can pay closing costs which makes the refinance more attractive even if we are bringing the interest rate down as little as 1% and you are forced to keep your PMI . Written by Preston Ware
First South Mortgage
Tel: 704-542-8057
* http://www.prestonware.com
Email is preston@prestonware.com. .
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