How to Save Money by Removing PMI with a Home Appraisal

If you are a homeowner who pays private mortgage insurance (PMI) on your mortgage, you may be wondering how you can get rid of it and save money. PMI is an insurance that protects the lender in case you default on your loan. It is usually required when you buy a home with less than 20% down payment or when you refinance with more than 80% loan-to-value (LTV) ratio.

PMI can cost you anywhere from 0.5% to 1% of your loan amount annually. For example, if you have a $200,000 mortgage with a 1% PMI rate, you would pay $2,000 per year or $167 per month for PMI. That’s a lot of money that could be used for other purposes, such as paying off debt, saving for retirement, or investing in home improvements.

Fortunately, there are ways to remove PMI from your mortgage and lower your monthly payments. One of the most common and effective methods is to get a home appraisal. A home appraisal is an assessment of your home’s value by a licensed or certified appraiser. The appraiser will inspect your home and compare it with similar properties in your area to determine its current market value.

How Home Appraisal Affects Your LTV Ratio

Why does a home appraisal matter for PMI removal? Because your LTV ratio is based on your home’s value and your loan balance. If your home’s value has increased since you bought it or refinanced it, your LTV ratio may have decreased below the threshold for PMI cancellation. Typically, lenders will allow you to cancel PMI when your LTV ratio reaches 80% or lower. Some lenders may even allow you to cancel PMI when your LTV ratio reaches 78% or lower.

For example, let’s say you bought a home for $250,000 with a 10% down payment and a $225,000 mortgage. Your initial LTV ratio was 90%. After paying off some of your principal and seeing your home appreciate in value, you now owe $200,000 on your mortgage and your home is worth $300,000. Your current LTV ratio is 66.7%. This means you may be eligible to cancel PMI and save money.

How to Save Money by Removing PMI

How to Request PMI Cancellation with a Home Appraisal

How do you request PMI cancellation with a home appraisal? You need to contact your lender and ask them about their requirements and procedures for PMI cancellation. You may need to provide proof of your payment history, your current loan balance, and your home’s value. Your lender may require you to pay for the appraisal fee, which can range from $450 to $550 on average. However, this cost may be worth it if you can save thousands of dollars in PMI fees over the life of your loan.

Once you have the appraisal report, submit it to your lender along with a written request for PMI cancellation. Your lender will review the report and verify that your LTV ratio meets their criteria for PMI removal. If everything checks out, your lender will cancel PMI from your mortgage and notify you of the change. You should see a lower monthly payment on your next statement.

Frequently Asked Questions (FAQs)

PMI stands for private mortgage insurance. It is an insurance that protects the lender in case you default on your loan. It is usually required when you buy a home with less than 20% down payment or when you refinance with more than 80% loan-to-value (LTV) ratio.

There are different ways to remove PMI from your mortgage, depending on your loan type, lender, and payment history. One of the most common and effective methods is to get a home appraisal. A home appraisal is an assessment of your home’s value by a licensed or certified appraiser. If your home’s value has increased since you bought it or refinanced it, your LTV ratio may have decreased below the threshold for PMI cancellation.

The cost of a home appraisal varies depending on the size, location, and condition of your home. The time it takes to complete a home appraisal also depends on various factors, such as the availability of the appraiser, the complexity of the property, and the market conditions. The average time for a home appraisal is between 7 and 10 days.

You need to contact your lender and ask them about their requirements and procedures for PMI cancellation. You may need to provide proof of your payment history, your current loan balance, and your home’s value. Your lender may require you to pay for the appraisal fee. Once you have the appraisal report, submit it to your lender along with a written request for PMI cancellation. Your lender will review the report and verify that your LTV ratio meets their criteria for PMI removal. If everything checks out, your lender will cancel PMI from your mortgage and notify you of the change.

The amount of money you can save by removing PMI with a home appraisal depends on your loan amount, PMI rate, and remaining loan term. For example, if you have a $200,000 mortgage with a 1% PMI rate and 20 years left on your loan, you would pay $2,000 per year or $167 per month for PMI. If you can remove PMI with a home appraisal, you would save $40,000 over the life of your loan or $333 per month.

Conclusion

Removing PMI with a home appraisal can be a smart way to save money and build equity in your home faster. However, before you pursue this option, make sure you do the math and compare the cost of the appraisal with the potential savings from PMI cancellation. Also, keep in mind that home values can fluctuate over time, so don’t assume that your home’s value will always increase or stay the same.

If you are interested in getting a home appraisal for PMI removal, contact us today. We are a professional and reliable appraisal company that can help you determine the accurate value of your home. We have experience in performing appraisals for PMI removal and other purposes. We will provide you with a detailed and unbiased report that meets the standards and expectations of your lender. Don’t wait any longer – get rid of PMI and save money today!

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