Posted By Alan Donald @ Sep 17th 2009 12:45pm In: Mortgages

Home on Bills

Lenders require mortgage insurance for conventional loans when buyers don't bring 20% or more of the purchase price as equity to their closing.  Mortgage insurance only protects the lender in case you default on the loan. It doesn't provide any benefit to you! The sooner you can get rid of it, the better off you are.

So, it is essential to make sure you calculate your percentage equity in your home regularly, so you can eliminate paying mortage insurance as soon as possible! 


First, you have to know what TYPE of loan do you have: Is it a CONVENTIONAL, VA, or FHA loan?


VA loans are designed so that veterans can borrow up to 100% of the value of the home WITHOUT mortgage insurance. So if you have a VA loan - no need to worry, you are not paying MI - rest easy!


For conventional loans, you will need to reach 20% equity in your home to be eligible to eliminate PMI. Check regularly on the value of your home and your mortgage balance. If you are convinced you have more than 20% equituy, call your lender and ask to reassess the need for PMI.


FHA loans charge 0.5% of the loan amount per year as a mortgage insurance premium, charged to the homeowner each month. In addition, FHA charges an upfront mortgage insurance premium (MIP) of 1.75%. These monthly payments will be automatically terminated when:

  • If your mortgage has a term longer than 15 years, the annual MI premiums will be eliminated when the "Loan to Value (LTV)" ratio reaches 78%, provided you have paid your annual premium for at least 5 years.
  • If your mortgage has a term of 15 years or less, and your original LTV was greater than 90%, the MI premiums will be eliminated when the LTV ratio reaches 78%, regardless of the amount of time you have paid those premiums for. So for a shorter term loan (15 years), you will only need 10% down on an FHA loan to eliminate MIP!

  • Second, you will need to determine the approximate current market value (CMV) of your home. You can do this by asking your REALTOR for a Comparative Market Analysis (CMA), or by checking county records for recent comparable sales.  The lender will probably do a quick value assessment and let you know if they agree with you or not.

    Once you have the value of your home and your current loan balance, you can estimate the equity you currently have in your home: If by your calculations you exceed the minimum required for your type of loan, contact your lender and ask about them eliminating mortgage insurance! 




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