You finally have enough equity in your home to request your mortgage company remove PMI. It seems like it would be an easy thing to do, right? Nope. (Well, perhaps it depends who your mortgage servicer is. Mine is Green Tree, and no, not so easy.)
Private Mortgage Insurance (PMI) is usually a requirement from your mortgage lender if you purchase or refinance your home with less than 20% equity. PMI can be expensive – it usually costs between 0.5 to 1% of your loan amount on an annual basis. PMI used to be deductible on your income tax, but starting 2014, that savings expired (though it could be extended if Congress could actually pass legislation).
Say your home is in California, like mine is, and your loan is for $400,000. Let’s take the middle of the road PMI example (0.75%), which means you’ll be paying approximately $3,000 a year in PMI expenses. That’s $250 a month!
Wouldn’t it be nice to take that $250 a month and spend it on anything else? Pay down credit cards, add it to your retirement account, add it to your mortgage principal or heck, even go out to dinner. Either way, when you’ve reached a specific threshold, don’t be shy in asking your mortgage servicer to cancel PMI.
Your process may be different depending on who your mortgage servicer is. Mine is Green Tree, so this is the process I was supposed to follow.
- You will need to write a letter officially requesting PMI to be removed. (You can use my letter as a sample for your request to remove PMI.)
- I didn’t do this because Green Tree never said it had to be done, but send off the “Authorization for Appraisal” at the same time. Green Tree claims their escrow team “couldn’t” do anything because I hadn’t authorized an appraisal. This even after my letter requested to be notified what I needed to do to get rid of PMI. I’d send both at the same time just so Green Tree has no excuse for rejecting your request to remove PMI.
- Now you wait, and wait. You should receive a letter from Green Tree acknowledging receipt of your request and that they will get back to you within 30 days. My reading of the law states it’s 30 days (as in calendar days) but they told me on the phone, they consider it business days.
Unfortunately, in my case, this is where the process stopped. After the letter and multiple times following up with them, on exactly the 30th business day, they send a letter denying my request to remove PMI. They didn’t even order an appraisal to see what my home was worth, they just said no. (Funny thing, if you look at the form you fill out to authorize the appraisal, the bottom corner says “FNMA MI Denial”. So clearly, before you even start the process, they intend to deny your request.)
Now, this is what should happen next. I haven’t gotten here yet. At this point, you should be able to request an appraisal of your home to prove the value of the property, and then get a loan to value (LTV) that will help you remove PMI.
Here’s something you will need to know. The loan to value (LTV) for your loan will have different percentages based on a few factors. If you have a conventional loan, you cannot request to remove PMI until you have had the loan for at least 2 years. And in California, your mortgage servicer can require that the LTV is 75% (not 80%) until you’ve had the loan for 5 years. Once you reach 5 years, the 80% mark applies. Also, your lender must remove PMI “automatically” based on when your loan is expected to fall to 78% LTV based on the schedule of when you originated (got) the loan. BUT you can request it at 80% — so stay on top of your loan.
I’ll keep you updated on how the process goes. I’m ordering my own appraisal, and will be sending it to Green Tree. Wish me luck.