Clever homeowners are frequently looking for ways to save money. However, an item that is often overlooked might be costing you thousands of dollars per year. There are some interesting stories about folks who are getting rid of PMI and saving big chunks of cash.
About Private Mortgage Insurance
Designed to protect your lender in the event that you default on your home loan, private mortgage insurance is very expensive. Because your down payment on your home was less than 20 percent of the purchase price, your lender required you to obtain private mortgage insurance.
The cost of private mortgage insurance will vary among borrowers. Pricing is based on a combination of factors, such as your credit score and the percentage of your down payment toward the purchase price of your home.
Private mortgage insurance rates typically range between .05% and 1% of your initial loan amount.
Recent data reflects that the average home price in San Diego, CA is approximately $632,000.
With a five-percent down payment, your mortgage loan would equal $600,400.
Your loan amount ($600,400) multiplied times 1% (PMI) would amount to $6,004 per year. This amount would increase your standard mortgage payment that includes principal, interest, taxes and homeowners insurance by an additional $500.33 per month. Getting rid of PMI could result in some big savings for your family.
With an extraordinary credit score, your lender may provide a more attractive rate for PMI. However, with a below-average credit score, your costs for PMI could be more expensive.
Getting rid of PMI could enable you to redirect your hard-earned money toward other goals, such as retirement savings, a college fund, home improvements or toward a nice vacation.
When buying a home, you can eliminate the need for PMI with a down payment that equals or exceeds 20 percent of the purchase price.
Also, you can avoid PMI with a down payment and a second mortgage that reduces your primary lender’s exposure to 80% of the purchase price or less.
For instance, if the purchase price of your home is $632,000 and you obtain a second mortgage for $63,200 to accompany your 10 percent down payment of $63,200, you would have a primary mortgage amount of $505,600 that does not require PMI.
Refinancing your existing mortgage loan might also be a great way to get rid of PMI. If the value of your home has increased enough to obtain a new mortgage loan for 80% or less than the new appraised value, you can get rid of PMI and enjoy the savings.
Refinancing is especially rewarding if you have a loan from the Federal Housing Administration (FHA). While a 3.5% down payment toward the purchase price of a home is an outstanding benefit of an FHA loan, you will not be able to cancel your private mortgage insurance. Although, if you have 20 percent equity or more within your home, you may be able to refinance an FHA loan with a conventional mortgage loan that does not require PMI.
Some lenders might accept a recent appraisal to void a PMI requirement if you have lived in your home for five years or more.
Additionally, the servicer for your mortgage loan is required to eliminate your PMI payment when the value of your home equals 78 percent of the purchase price.
Mortgage servicers may not remove your PMI automatically or upon your verbal request. You must take proactive measures to obtain an appraisal and to provide any information that validates your request.
Also, your lender might deny your request to cancel PMI payments if your mortgage loan is not in good standing or if you no longer occupy the property.
Prospect Financial Group offers competitive home loans for purchase and for refinance transactions. Contact a member of our lending team today to discuss getting rid of PMI and saving your money.
Prospect Financial Group
948 Garnet Avenue
San Diego, CA 92109
NMLS: 349089 | BRE: 01837707
Jason Vondrak has been in the mortgage industry since 2004 and co-founded the mortgage brokerage Prospect Financial Group in 2006 in San Diego, California. Today he serves as President and CEO of Prospect Financial Group and the president and founder of Prospect Property Group, a real estate development company, established in 2012.
“I’ve had the privilege to serve in an industry that exists to ensure homeownership remains among the top priorities of government and citizens alike. Over the years, it has been a pleasure working alongside homeowners, real estate professionals, and business associates combining efforts and teaming up to help homeowners realize the dream of home ownership.”