Can a Home Appraisal Be Used to Remove PMI?

For many homeowners, Private Mortgage Insurance (PMI) represents an additional cost on their monthly mortgage payments. This insurance primarily safeguards the lender if a borrower defaults. Homeowners often seek to eliminate PMI to reduce housing expenses. A home appraisal can help remove PMI by demonstrating increased home equity.

Understanding Standard PMI Removal Paths

Federal law, specifically the Homeowners Protection Act (HPA), outlines PMI termination conditions. Automatic termination occurs when the loan-to-value (LTV) ratio reaches 78% of the home’s original value, based on the initial amortization schedule assuming consistent payments.

Borrower-requested termination allows homeowners to ask for PMI cancellation once their LTV ratio reaches 80% of the home’s original value. This threshold can be met by following the amortization schedule or through accelerated principal payments. For this, homeowners must have a good payment history and meet lender criteria. A home appraisal is valuable in this process, especially if the home’s market value has increased.

The Purpose of an Appraisal in PMI Removal

A home appraisal provides an updated, professional assessment of a property’s current market value for PMI removal. This valuation may differ from the home’s original purchase price. An appraisal reflects appreciation due to local market conditions or substantial home improvements.

A higher current market value demonstrated by an appraisal can show the LTV ratio has dropped to the required threshold faster than through principal payments alone. For instance, if a homeowner’s loan balance is $200,000 and the original home value was $250,000 (an 80% LTV), an appraisal showing the home is now worth $300,000 would mean the LTV has decreased to approximately 66.7% ($200,000 / $300,000). This updated LTV can meet lender requirements for PMI removal. A licensed and independent appraiser must conduct the appraisal for an unbiased valuation.

Lender Requirements for Appraisal-Based Removal

Lenders impose specific conditions for removing PMI based on a new appraisal. Most require a minimum period since loan origination, often two years, though some may have different thresholds, such as five years. During this time, homeowners must maintain an excellent payment history, with no 30-day late payments in the last 12 months or 60-day late payments in the past 24 months.

Lenders also require the property to have no subordinate liens, like a second mortgage or home equity line of credit. If value increased due to home improvements, documented evidence of these upgrades may be needed. While the federal standard for borrower-requested termination is 80% LTV of the original value, some lenders might require a lower LTV, such as 75%, when using a current appraised value for PMI removal. A lender may also require the appraisal to be performed by an appraiser from their approved list.

Process for Requesting PMI Removal with an Appraisal

To remove PMI using a home appraisal, first contact your loan servicer. Understand their specific policies and requirements for appraisal-based PMI removal. Inquire about their LTV threshold for current value, the type of valuation they accept (such as a full appraisal, Broker Price Opinion, or Automated Valuation Model), and any specific forms or procedures.

Homeowners then arrange and pay for the appraisal. A standard single-family home appraisal typically costs $300 to $800, depending on location and property complexity. Ensure the appraiser is licensed and independent, and the report meets servicer requirements. Once complete, submit a formal PMI removal request with the full appraisal report and any other required documentation, such as proof of home improvements or payment history. Follow up with the servicer to confirm receipt and processing timelines.

Lender Review and Decision

After a homeowner submits a PMI removal request with the appraisal report, the loan servicer conducts a thorough review. They verify the home’s current market value and ensure all eligibility criteria are met. This includes confirming payment history, absence of subordinate liens, and adherence to minimum time elapsed since loan origination.

If approved, the servicer notifies the homeowner in writing, stating the effective date of PMI termination and how the monthly mortgage payment will adjust. If denied, the servicer provides a written explanation for the denial, detailing reasons such as the LTV not meeting the required threshold or other conditions not being satisfied. Denied homeowners may reapply later if circumstances change, such as further principal reduction or home value appreciation.