Every time I discuss Private Mortgage Insurance (PMI) with potential homebuyers, the first two questions I’m asked are “Why do we need PMI” and “How long do we have to pay it?”
Private Mortgage Insurance covers part of the losses the investor who purchases your loan will incur, if you didn’t make your mortgage payments. You need PMI if you don’t have a 20% downpayment, unless you prefer some other type of financing, such as a FHA, VA or a combination first and second mortgage.
PMI payments may be terminated one of two ways. First, if you are current with your loan payments, PMI will automatically terminate on the date the principal balance of your loan is first scheduled to reach 78% of the original value of the property.
The second way to terminate PMI in Minnesota requires you to be proactive. If you meet all of the following criteria:
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Two years have passed since you took out the mortgage
- You have 20% equity evidenced by an appraisal that is acceptable to your mortgage company. The three potential ways you build the required 20% equity are by paying down principal, making improvements to the home and appreciation of the market value of the home over time. If you don’t currently occupy the home as your primary residence, you may need more than 20% equity.
- Your mortgage payments are current and you have a good payment history.
Submit a written request to your mortgage company before ordering an appraisal and ask for their specific procedure and requirements needed to cancel PMI.
For more detailed information:
Follow this link for the Federal PMI disclosure: LINK
Follow this link for the notice from the Office of the Minnesota Attorney General: LINK
There are 7 Private Mortgage Insurance companies that we arrange PMI coverage with on a regular basis. Their rates and guidelines are not all the same. Part of my job is to match you up with the best fitting PMI Company.
FHA Mortgage Insurance Premiums are significantly different. Watch for a future post explaining them.
