Can I use the current value of my home to eliminate mortgage insurance on my Conventional mortgage?
Short Answer:
Yes, you can use the current appraised value of your house to help eliminate mortgage insurance on a Conventional mortgage. However, you will most likely need 25% equity vs the normal 20% for the mortgage servicer to approve the elimination.
Longer Answer:
Recently, at a homebuying seminar, a participant asked me, " Can I use the increased (i.e. appreciated value) of my home to help eliminate mortgage insurance down the road?"
The answer is yes, under certain conditions. Here's how you can leverage your home's value to potentially remove mortgage insurance and save money.
Understanding Mortgage Insurance
Mortgage insurance is typically required when your down payment is less than 20% of the home's purchase price. It protects the lender in case you default on your loan. However, as your home's value increases, you may be able to eliminate this insurance on Conventional mortgages.
When Can Mortgage Insurance Be Eliminated Without Current Value?
In some cases, mortgage insurance can be eliminated without relying on the current value of your home:
- Automatic Termination: Mortgage insurance is automatically terminated when your loan balance reaches 78% of the original purchase price, provided you are current on your payments. This is a federal requirement for loans covered by the Homeowners Protection Act.
- Scheduled Termination: Lenders are required to cancel mortgage insurance on the date when your loan is scheduled to reach 80% of the original purchase price, based on the original amortization schedule, assuming you are current on your payments.
- Requesting Termination: Once the balance of your mortgage equals 80% of the original appraised value, consumers are allowed to request the mortgage insurance be removed by the servicer. Some mortgage servicers might require an appraisal to ensure the appraised value of the home has not decreased since you purchased it.
When Can Mortgage Insurance Be Eliminated Without Current Value?
- Achieve 25% Equity: To remove mortgage insurance using the current value of your house, you generally need at least 25% equity in your home. This means the balance of your mortgage divided by the current value of the house is 75% or less.
- Get a Home Appraisal: To determine if you meet the equity requirement, you may need a professional appraisal to assess your home's current market value. This appraisal will help confirm whether your LTV ratio is 75% or less.
- Maintain a Strong Payment History: Most lenders require that you have made at least 24 on-time mortgage payments. This consistent payment history demonstrates your reliability as a borrower and strengthens your case for removing mortgage insurance.
- Contact Your Mortgage Servicer: If you meet the equity and payment criteria, reach out to your lender to discuss the possibility of removing mortgage insurance. They may have specific procedures or additional requirements, such as an official appraisal.
Conclusion
Using the current value of your home to eliminate mortgage insurance can be a smart financial move, potentially saving you hundreds of dollars each month. Additionally, understanding the conditions under which mortgage insurance can be removed without relying on current value can provide further opportunities for savings. Always consult with your lender to understand their requirements and process for removing mortgage insurance. This proactive approach can lead to significant savings and a more manageable mortgage payment.
If you have questions about eliminating your mortgage insurance on a Conventional mortgage, please reach out to me at Teamjd@mainstreethl.com.
These blogs are for informational purposes only. Make sure you understand the features associated with the loan program you choose, and that it meets your unique financial needs. Subject to Debt-to-Income and Underwriting requirements. This is not a credit decision or a commitment to lend. Eligibility is subject to completion of an application and verification of home ownership, occupancy, title, income, employment, credit, home value, collateral, and underwriting requirements. Not all programs are available in all areas. Offers may vary and are subject to change at any time without notice. Should you have any questions about the information provided, please contact me.
Find more answers to mortgage & real estate questions at www.jdanswersquestions.com
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