Removing mortgage insurance is different for conventional and FHA loans. However, most people may not realize that the removal of mortgage insurance, regardless of loan type, is actually dictated by the federal government.
If you take out an FHA loan, your ability to remove mortgage insurance is predicated on the down payment amount. If you put more than 10% down, you are only required to pay mortgage insurance for 11 years. If you put less than 10% down, then you have to pay mortgage insurance for the entire life of the loan. So, keep that in mind if you are considering an FHA.
Conventional loans carry private mortgage insurance, or PMI. Most people think that once they get to 80% loan to value, the mortgage insurance falls off. That’s not exactly true. The rule states that if you pay mortgage insurance, it automatically falls off at 78% loan to value—but you can request to remove it at 80% LTV. Contact your loan servicer once you reach 80% and ask to get that PMI removed.
Appreciation in value does add another wrinkle to this process. A lot of customers say, “My home appreciated in value since I bought it. Now I have the 20% equity and would like to remove my mortgage insurance.”
That is fine, but the rules for using appreciation as justification are different than the rules based on the original purchase price. You are ineligible to use appreciation as justification years zero through two of owning the home. Between the two and five-year mark, you need 25% equity for justification; after five years, that number goes back down to 20%.
Your loan servicer will require an updated appraisal at that time to make sure that you have subsequent equity levels.
If you have any other questions about removing mortgage insurance, just give me a call or send me an email. I would be happy to help you!