PMI stands for Private Mortgage Insurance, and it is required on mortgages with a loan-to-value ratio greater than 80%. For example, if your home was worth $100k at the time of closing, and you owe more than $80k on the loan, you are required to have PMI.
I got my annual PMI disclosure tonight, and it says that if I’ve had my loan for at least two years, and have a good payment history for at least two years, I am eligible to cancel my PMI.
It’s not a lot, mind you. But I’d love to save the ~$70/mo it costs. That’s a fifth of vodka and a bag of CBD gummies, every month.
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I’ll state up front that I have been processing residential loans for about 12 years now.
Typically, you’d get PMI from a third party like Arch, Essent, MGIC, etc. They tend to be pretty strict about not removing PMI until the loan has been paid down to 80% LTV. A lot of institutions like to use them because they have a high underwriting standard (which reduces the risk of regulatory violations and discrimination.)
What you’re describing would not be the norm; my best guess is your financial institution is handling MI itself and is able to deviate from standard practice. In some cases, we will send out an appraiser to do a “drive-by” valuation on loans nearing 80% LTV, so it’s possible they confirmed your loan to value has decreased without telling you that exactly. I could even see them sending these if they confirm the county valuation of your property is high enough to be confosent about your estimated LTV.
All that said, though, I hate this industry and do everything I can to do as little as possible for these fucking predators. 9-5, fuck your conferences and I don’t give a fuck about the secondary market or servicing. PMI removal is far past my involvement, but I have an overall understanding of the Mortgage origination and servicing
I get the need for PMI but it’s such bullshit that the borrower pays it when it’s for the lender’s benefit.
I am not defending this, just explaining their perspective, but the institution is basically taking a risk of loss on any loan over 80%. The PMI helps lower the impact on that risk, and is paid by the borrower because they are the risk themselves.
If the bank has to foreclose within 6 months because someone hasn’t made their payments, they’re not going to get the same value the home was sold for when they put the home to auction. The lower the LTV, the higher the chance is that the bank can at least break even on the total loan given.
I like how I’m analyzing this as if I’ll ever fucking own house or even almost approach being able to produce a down payment for one.
Talk to your local government about any upcoming mortgage grants. Every community I have worked in has some grant that comes out during specific times each year. Usually just a few grand to cover closing costs, but I’ve seen some that cover 20% with a 4 year commitment to not sell the house.
There are also loan programs specifically meant for lower incomes; FHA typically has a higher debt-to-income threshold than conventional loans. Now, I still can’t afford a house even with that, but I have qualified many people who otherwise would not have made it past the Loan Officer.
Thanks for the info
PMI specifically only applies when you don’t have a 20% down payment. If your income is consistent and high enough to qualify you don’t really need to wait until you save up a big down payment.
I called one day to see how close I was to being able to remove PMI and the rep said “eh, you’re close enough… I removed it, you’ll see your updated amount on your next payment”.
I was surprised how easy it was.
A large part of your consideration to let you drop it will be how close you are to paying off 20% of the loan’s value. If you’re over 15% and with that history, you’ll have a better chance.
Yes, because presumably you’ve shifted that balance of loan to value significantly enough that you’re much less of a risk. You have. A lot more skin in the game after 2 years.
the first like 10 years of payments is mostly against the amortized interest, so in the first 2 years the principal owed barely moves down.
Which is why on a 30 year home loan, even adding an extra $150 a month to paying your principal down will literally shave a decades worth of payments off.
Yes, money you will completely lose if you default.
What, the interest? You lose that money, default or not.
The value you can get from selling it down the line will more than cover that interest. You only really fuck yourself with that cost if you see the mortgage through to maturity.
Also, if your home appreciates so that the equity is more than the 20% down payment on your loan would be, you might be able to stop paying it.
Some states the mortgage company has to give you your PMI payments back starting after the house was appraised at the higher value.
If you think your home has increased in value enough to lower the LTV to 80% you can typically ask them to do a “drive-by” valuation to confirm.
Wish that was the case in AU, ours is paid upfront in a lump sum and is non-refundable. If you refinance above 80% you pay it again, in full, upfront. If you pay the loan down to below 80%, doesn’t matter, no prorata refund. It’s 20-30k down the toilet, just in LMI. That’s on top of the 50-80k in stamp duty also pissed away :(
To make it worse, many add the LMI to their mortgage, so they pay interest on the higher balance. It’s also a deterrent for people to refinance while they’re within that 80+% LVR bracket, so shopping for a better deal is mostly pointless. Banks aren’t just disinterested in pushing for a better deal, they’re actively incentivised against it.
I would take a random free house in Japan before joining the Australian real estate racket even if I could afford the million or more price tags.
And if you know anything about Akiya houses you know they can potentially be worse than a prison sentence.
I strongly recommend not disclosing that you intend to use the monthly savings on vodka and gummies
Unless you’re getting a cash-out refinance, financial institutions really don’t care what you spend your money on. The bank rep especially isn’t being paid enough to care.
I’m curious why you say that?
Rule of thumb when you’re trying to get approved for a loan is to disclose only what is asked for (income, debts, etc) the more you say and provide, the higher the risk is of having to do unnecessary legwork.
There’s a common understanding between loan processors that is essentially "if it’s not a detriment to the loan quality, necessary information like an additional owned rental propsrth, or an underwriting condition, the Underwriter doesn’t need to know. This is because the Underwriter is meant to scrutinize every detail of a loan. So something completely useless and innocuous could lead to a delay.
firstly, and most importantly, it’s none of their fucking business.
