What is PMI?
PMI or Private Mortgage Insurance is a protection that the borrower gives to the lender when the value of the home has not reached a particular percentage of the loan. If you owe more than 80% of the value of your home, you’ll likely have to pay PMI. Many homeowners make upgrades that radically increase the value of their home soon after moving in. If your home is worth more than your original mortgage, a home appraisal to remove PMI could lower your monthly mortgage payment with little disruption.
We applaud whenever homeowners are able to remove private mortgage insurance from their mortgage payments. It’s an exciting step towards more financial freedom by saving money every month. In most cases the lender that is servicing your mortgage will require that you provide them with an appraisal of your home to help them evaluate the removal of your PMI. Once the documented value of your home goes up, you can take what you were putting into that PMI fee each month and put it on the premium!
Choose the Right Appraiser To Remove PMI
Roughly half of all lenders maintain a registry of appraisers from whom they will accept an appraisal for the purposes of PMI removal. Many other lenders will allow you to provide an appraisal from an appraiser of your own choosing. Before initiating an appraisal request we recommend clarifying with the lender who services your mortgage about any restrictions they may have on appraiser selection. Because an appraiser will charge you a fee, giving your current mortgage holder a heads-up that you’re considering a home appraisal to remove PMI will lessen the risk of wasting this fee.
Do Your Homework
If you’re thinking about getting your house appraised to remove PMI, check out the value of homes in your neighborhood. Zillow is a good place to start. See what’s for sale in your neighborhood and compare it to your remaining mortgage balance. If you can find comparable homes in your neighborhood, review the photos and note what improvements have been made to those properties. If your home has also been improved, a home appraisal to remove PMI could improve the value of your home and lower your monthly mortgage requirement.
You may not have had the time or the resources to improve your home. This doesn’t mean that you can’t benefit from a home appraisal to remove PMI. If you got a good price when you bought your home and the values of the homes in your neighborhood have gone up, you may gain from getting your house appraised to remove PMI. As possible, look for comparable homes in your neighborhood. Consider
- square footage
- exterior finish
- yard size
- bed/bath configuration
- local amenities
If schools in your area are getting great ratings, it can help your home value. Other amenities, such as community pools and new libraries, can also help improve the sale price of your home.
Talk to Your Lender
Getting your home appraisal to remove PMI will take the cooperation of your current lender. It’s important to focus on why PMI charges were established in the first place. Will your lender lose money if your home appraisal to remove PMI works out? Technically, yes. However, your lender will also gain the security of knowing that you are now a fully vested borrower. You own more than 80% of your home, which means that you’re at greater risk of losing more should you face a financial crisis. Taking the extra step of getting your house appraised to remove PMI can increase your equity and even make it possible for you to borrow and make further improvements on your home.
If you’re in the process of getting your house appraised to remove PMI or considering borrowing against your equity, you can make the process easier by working with an appraiser who specializes in clearing the PMI threshold and documenting this level of value. Qualifying for a mortgage is not an easy process. However, once you get a mortgage and buy a home, getting past the point of having to pay PMI is a wonderful way to boost the funds available for your mortgage principal payments.
Down Payment Considerations
You can avoid PMI entirely by making a 20% down payment. However, in today’s real estate market, this 20% down payment is always moving and generally moving up. If you miss out on a great house because you want to avoid PMI, you may be severely limiting your financial future. Getting into the house while still having to pay PMI is a great way to stimulate your bill-paying and home-improving muscles to get under that 80% threshold as quickly as possible.
Real estate and mortgage brokers all have their own specialties. While investors generally have to reach out for mortgages that don’t allow borrowing more than 80% of the value, residential mortgage lenders are more flexible. If you are qualified for an FHA mortgage and are prepared to temporarily pay this additional fee of PMI for a time, you can actually qualify to buy a home that is an investment in the future of the wealth of your family.
Work With The Right Appraising Team To Remove PMI
Do your homework before you seek out an appraiser. Make sure you’re working with an appraiser who understands the threshold you have to meet to be able to stop paying PMI. Carefully consider the values of the homes in your area. If you see similar houses for sale, carefully review the final sale price to make sure your appraisal fees are worth the investment. Your ultimate goal has to be to meet the 80% threshold. Be prepared for photos, for a detailed walk through, and for an interview to share information on any upgrades you’ve made.
Your appraisal may take time, especially if the appraiser has to study recent sales and valuations in your neighborhood. If you’re not certain that you’ll qualify, you may want to give it 6 more months and come at the refinance again to make sure your appraisal fees are not wasted.
We hope to become your preferred appraisal group. No matter the situation, we sincerely congratulate you on this financial step! Contact ExcelAppraise for a conversation about your appraisal needs and goals.