Do you have a conventional loan with mortgage insurance? Once you get to 80% of the original purchase price, you can look into eliminating that payment! If you have an FHA loan or USDA, the mortgage insurance will not go away but it does on conventional financing. There are some guidelines that you need to follow.
Fannie Mae and Freddie Mac are similar but do vary slightly when it comes to eliminating the MI payment. Both require that the borrower must be current on payments, you can’t have any 30 day late payments in the previous 12 months and no 60 day late payments in the last 24 months. If you are using the original value, Fannie and Freddie want the current loan servicer to determine that the current value is the same or higher than the original value. That usually does not mean you need an appraisal, they may use computerized methods to determine the value. If you are using the current value to eliminate MI, you will need an appraisal to determine the value.
You can request to eliminate mortgage insurance once you have paid the loan down to 80% of the original value. Fannie Mae says that they will cancel the MI on the earlier of the date the mortgage balance is first scheduled to reach 80% of the original value or the day the mortgage balance actually reaches 80% of the original value. If you have a second home, the MI goes away when you reach 75% of the original value for Fannie Mae. For an investment property or a 2-4 unit principal residence, the mortgage has to be at 70% of the original value. Freddie Mac will eliminate mortgage insurance once you reach 80% of the original value based on either the amortization schedule or actual payments. For Freddie, if it’s a second home, you only need to reach 80% (Fannie is 75%). Freddie does require you to reach 65% for investment properties and 2-4 unit principal residences.
The other way to eliminate mortgage insurance is based on the current value of the property. In this case, you need to wait at least two years. Fannie and Freddie both require that you are at 75% of the current value (based on an appraisal) if it’s been 2-5 years since you originated this mortgage. Fannie does allow you to eliminate MI if you reach 75% due to property improvements and the seasoning requirement is waived. Both Fannie and Freddie allow you to eliminate MI at 80% if you have had the mortgage at least 5 years. For investment or a 2-4 unit principal residence, you need to reach 70% of the value for Fannie and 65% of the value for Freddie. Neither require you to wait 5 years for investment and 2-4 unit residences.
For those that don’t do anything, the MI will automatically terminate for mortgages originated after 7/29/1999. Both Fannie and Freddie will eliminate the MI once you pay the mortgage down to 78% of the original value for 1 family principal residences and second homes. Fannie will automatically terminate MI at the midpoint of the amortization period for investment and 2-4 unit properties. Freddie will not automatically terminate MI for investment properties or 2-4 unit homes.
Mortgage insurance lets you buy a home with less than 20% down but it helps knowing you can eliminate the payment once you get to 80%! For some, they use a lender paid mortgage insurance, in this case, the MI is built into the interest rate and you don’t have a separate payment. In this case, the MI is not something you see and you can’t change the payment.
If you have questions on getting rid of MI, contact your loan servicer or your loan officer. They will be able to answer questions on your particular situation!
Leslie Vanderwerf, NMLS ID#335509, American Mortgage & Equity Consultants, Inc., An Equal Housing Lender, NMLS#150953 – Email – Website
