One of the benefits that may come out of the entire COVID Pandemic mess is the increase in local real estate prices across New York and Connecticut. Not only are homes worth more and have become easier to sell to those looking to get out of cities and into the suburbs, but there might also be hidden benefit to those home owners who have Private Mortgage Insurance still active on their loans.
What is Private Mortgage Insurance?
When banks lend money, everything is based on risk. A conventional mortgage requires 20% down, and then you don’t need PMI. If you want to buy a home with less than 20% down, such as an FHA loan, you will be required to get Private Mortgage Insurance to insure the extra risk that comes with a lower down payment and less equity.
How do you get rid of PMI?
There are two ways to terminate PMI early.
The first is to refinance to a conventional loan where you have 20% down, but this requires more equity/down payment and will cost you the full array of closing costs, as you are getting an entirely new loan. You will also have to go through the entire mortgage process again….
The other way is to keep your current loan and hit 20% equity. When you closed, the lender should have provided you with a document telling you that your PMI will automatically terminate at 22% equity and that you can call and request termination at 20% equity. There are two ways to hit the 20% equity sooner:
- Make additional payments (residential loans o longer have pre-payment penalties); or
- REAPPRAISE YOUR HOME.
This is where the COVID rush jacking up local real estate prices could help.
BORROWERS/HOME OWNERS WHO HAVE PMI CAN HAVE THEIR HOME REAPPRAISED. APPRAISALS ARE BASED ON COMPS (COMPARATIVE PRICES OF SIMILAR HOMES THAT SOLD IN THE AREA WITHIN THE LAST 3 MONTHS). IF YOUR HOME APPRAISES HIGH ENOUGH FOR YOU TO HAVE 20% EQUITY, YOU CAN GET RID OF PMI.
PMI fees on loans we have seen range from $60 a month to over $300 a month. The cost of an appraisal ranges from $400 to $900 depending on the specifics of the home and who your lender hires. An investment of a few hundred dollars for an appraisal could save borrowers a few hundred dollars PER MONTH on their mortgage payment.
To order a reappraisal you simple need to reach out to your lender and tell them it’s what you want to do!