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This week I called home buyers who registered on Sacramento Real Estate Neighborhoods which is where home buyers search for homes for sale and get the latest MLS listings for sale on their email each day.
One of those phone calls to a potential home buyer brought up an interesting burning question that other home buyers might have…
Let’s call this home buyer, Ted. Ted said that he had been defeated earlier this year since he placed on offer on many homes and they always sold for more than the asking price.
Yes, Ted that did happen for many home buyers. It was called “supply and demand.” But, never fear, now with inventory high this is less likely to happen again to you.
Now for Ted’s BIG burning question…Ted said he was taking this time to save money for his down payment on a house since he only had 10% and was VERY concerned about having to pay mortgage insurance (PMI) for the DURATION of his mortgage loan. Note: This would have been a Conventional Loan.
PMI is extra insurance lenders require when a home buyer’s loan is for MORE than 80% of the appraised value of the house or condo the home buyer is purchasing. This is done just in case the home buyer defaults on their loan and protects the lender.
Ted WON’T have to pay PMI for the duration of a 30 year mortgage. First of all the value of the home Ted buys will increase in value. As soon as the appraised value of Ted’s home reaches that 80% mark either through home prices increasing or due to home improvements, Ted’s PMI will be eliminated. Ted wants to make sure however, that he does not take out an equity line of credit for those great home improvements. Otherwise his request to terminate the PMI might be rejected.
There is a caveat to eliminating PMI, the homeowner must be current on their home mortgage and not been delinquent. Most lender must eliminate PMI as soon as the borrower pays the loan balance down to 78% of the value. For those homeowners who are considered high risk, the elimination of PMI is automatic at 77% of the home value. Loan payments must be current.
Here is an example of when you may cancel your PMI
$200,000 Present Value of Your Mortgage
x 1.25
$250,000 Minimum Value Your House Must be to Cancel PMI
Of course, if the appraised value of your home exceeds $250,000 you should contact your lender immediately to have PMI removed.
For further information about your PMI, contact your lender directly. And if you are a Sacramento home buyer be sure to take a look at ALL Sacramento homes for sale at Sacramento Real Estate Neighborhoods and give me a call so we can get started finding YOU just the right home.
Good thoughts, Gena. I remember when the market was really booming 5 years ago. Home owners in newly constructed areas would call me to get an appraisal to remove PMI within a year of their original purchase. Values were really going up like wild.
Ryan, you’re right. And today, some folks have purchased properties and provided home improvements which might lend them to give you a call to appraise their property and drop the PMI, as well. You are the Sacramento Appraiser to call!
Good article Gena! Home improvements, amortization of the loan, and appreciation might all help PMI to go away. And that’s good riddance!
Good points, Roberta. It is always such a wonderful day for a homeowner…no PMI!
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