How Do You Remove PMI From Your Mortgage?

Private Mortgage Insurance (PMI) is typically required by lenders when a homebuyer makes a down payment of less than 20% of the home’s purchase price. PMI protects the mortgage lender, not the homeowner, against potential losses if the borrower defaults. This insurance helps lenders mitigate the increased risk associated with a lower down payment. While PMI enables more individuals to achieve homeownership by requiring less upfront capital, it also adds to the monthly mortgage payment, increasing the overall cost of the loan.

Understanding Eligibility for Removal

Homeowners often seek to remove PMI to reduce their monthly housing costs. Several criteria dictate when this is possible. The Homeowners Protection Act (HPA) establishes rules for PMI termination on conventional loans.

Under the HPA, PMI must be automatically terminated by the loan servicer once the loan-to-value (LTV) ratio reaches 78% of the property’s original value, provided the borrower is current. The original value is typically defined as the lesser of the contract sales price or the appraised value at the time the mortgage was created. Borrowers can also request cancellation of PMI once their LTV ratio reaches 80% of the original property value. This borrower-initiated cancellation requires a written request to the servicer and a good payment history: no payments 30 days or more late in the past 12 months, and no payments 60 days or more late in the past 24 months. If the property’s value has increased due to market appreciation or improvements, the 80% LTV threshold for borrower-initiated cancellation might be based on the current appraised value, allowing for earlier removal.

Government-backed loans, such as FHA and VA loans, have different mortgage insurance rules. VA loans generally do not require PMI, though they may have a one-time VA funding fee. FHA loans require a Mortgage Insurance Premium (MIP), which includes both an upfront payment and an annual premium. For many FHA loans, this MIP may be required for the entire life of the loan, particularly if the down payment was less than 10%.

Assessing Your Property’s Value

Determining your property’s current market value is often a step in initiating PMI removal, particularly if you are seeking to cancel it based on increased equity due to appreciation. This current value becomes relevant for borrower-initiated cancellation when your equity has grown beyond what was initially projected by your amortization schedule. Lenders require a formal valuation to confirm that your loan-to-value (LTV) ratio has fallen below the necessary threshold.

A professional appraisal is the most common and often required method for establishing a property’s current value for PMI removal. This involves a licensed appraiser conducting an evaluation of the home, considering its condition, features, and recent comparable sales in the area. A full appraisal typically costs $300 to $500, borne by the homeowner. The lender will generally require the appraisal to be performed by an appraiser from their approved list.

Some lenders may also accept a Broker Price Opinion (BPO) as an alternative to a full appraisal. A BPO is a less detailed valuation, often conducted by a real estate agent, and is generally less expensive, costing between $100 and $200. While a BPO can provide a quicker and more affordable estimate, confirm with your loan servicer whether they accept a BPO for PMI removal, as policies vary. Before incurring the cost of a formal valuation, homeowners can perform preliminary market research by reviewing comparable home sales in their neighborhood to estimate if their LTV ratio might meet the cancellation requirements.

Initiating the PMI Removal Process

Once you understand the eligibility criteria and, if necessary, have assessed your property’s current value, initiate the Private Mortgage Insurance (PMI) removal process. Contact your mortgage loan servicer, the company that handles your monthly payments. Inquire about their specific PMI removal policies, any required forms, acceptable valuation methods, and associated fees. Obtain this information in writing to ensure clarity on their requirements.

You will likely need to gather documentation to support your request. This typically includes proof of a good payment history, such as a statement showing no late payments for the required period, and if you are relying on increased property value, a recent appraisal report or Broker Price Opinion (BPO). Some servicers may also require a formal request letter or a specific form they provide, and you may need to certify that there are no junior liens on the property. Keeping copies of all submitted documents and correspondence is a prudent practice for your records.

After compiling the necessary documentation, you will submit your request to the loan servicer. This submission can be done through mail, an online portal, or in person, depending on the servicer’s capabilities. Processing timelines can vary, but you might expect a decision within a few weeks to a month. The servicer will communicate their decision, and if the request is approved, the PMI will be removed from your subsequent mortgage statements. If the request is denied, the servicer should provide a reason, which allows you to understand if there are further steps you can take, such as making additional principal payments or waiting for automatic termination under the Homeowners Protection Act.