Question by questions: I am paying PMI on my mortgage. If my home value reaches 20% in less than a year can I refinance out of PMI?
I am a 1st time buyer / new home owner who hasn’t even made the first payment yet “Sept. 1st”. I have PMI on my mortgage that I would like to get rid of as soon as possible. Most lenders require a year or two as good payment history before you can drop PMI. I have no pre-pay penalty on my mortgage so if I refinance with another lender in less than a year when my value exceeds 20% (basically there already) will the new lender require that I have been in my home at least a year or two with good payment history?
Answer by DJ B
There shouldn’t be any reason you wouldn’t qualify to refinance WHEN the value is 20% or more. Key is to that the appraisal come in correctly.
Know better? Leave your own answer in the comments!
A new lender should not require you to be in the property for a year or more to keep PMI off the mortgage. It is a new financial transaction and they will base the Loan to Value ratio on the appraisal of the property.
One thing I would have you think about. Factor in how much you would pay in PMI for the full year and compare that to the costs associated with refinancing the property. If say you spend $ 100 per month in PMI but the closing costs for refinancing the mortgage is $ 2000 it pays to keep the PMI and get it removed in one year. $ 100 per month is only $ 1200 in one year. You’ll have spent $ 800 more during that year to refinance the mortgage. Plug your own numbers in to see the true costs between keeping and refinancing the PMI away.
Yes. Here is what you need to do. Have you been paying your mortgage on time? Have you missed or made any late payments? If so the Insurance Company can refuse to release the MI policy. If not, read on:
Contact the mortgage company and get the number for the PMI holder.
Call them and tell them you suspect you have enough equity to have the MI policy released.
The insurance company will do a comp check to see the values in your area. If the comp supports your claim they will send you the forms to have the policy released. They will want you to have an appraisal done on the property if the equity is marginal and can go either way.
If you need an appraisal, ask them to recommend one from their approved list. This will avoid any potential appraisal review should the value be questionable. (That could take weeks)
When all is said and done you will be free of that monthly payment. Congratulations!
Absolutely not. If you refinance into a loan @ 80% LTV, you will not have PMI. Remember, PMI is tax deductible in most cases. You will have to weigh the cost of the refi.
I agree with Patrick but would add also factor in the cost of interest that you have already paid. You will be starting over in your amortization schedule if you refinance thus taking you back to paying another year of interest. Unless the rate is less, I doubt that it would every pay to refinance to get out of PMI for one year. You would need significant savings to justify the cost of refinancing.
maybe not a year’s worth of payment history, but at least show 3 months of timely payments. Make sure your new lender will allow you to go off the appraised value and not the sales price if it’s been less than a year since you purchased. http://www.choicefinance.net/
If you have a FHA loan, they will usually not drop PMI for 5 years…. even if you gain 20% equity.
But yes, you could do a REFI without PMI as long as you have good credit and payment history, etc.
But be sure to do the math. Dropping PMI will probably save you $ 70 bucks a month… more or less, depending on your exact premium. The interest rate may of gone up or down, depending on what you are paying now. You might also have closing costs when you refi (unless the lender pays them).
So when you add all that up, it might take some time to break even… make sure its worth it. It probably is if you plan on staying in your home for several years. Also… the interest rates might be going down soon, so you might want to see what the fed does.
You don’t need to refi, all you need is to have 20% equity. Your problem is you just bought the house and have not even made the first payment. How could your house appreciate 20% in 1 month? 2nd problem is when you have your home appraised (required for PMI deletion) the appraiser will have to explain the 20% appreciation in one month and back it up with supported facts and I don’t know of any county in the US that has had a 240% yearly appreciation rate. For instance, the typical seller anticipates that the home they bought with no money down, all seller paid closing costs, and a 4.75% 3-year ARM in mid 2005 will now sell for approximately 70 – 85% above what they paid for it. It should be inherently obvious, even to the most casual observer, that this person is suffering from americandreamatosis, which is the unreasonable assumption that profits naturally follow from an investment level that is near or equal to zero. You will have to wait at least 2-3 years. remember you don’t have to refi, just call your lender and tell them you want to remove your PMI and they will tell you to have an appraisal done and to send it to them.