Hello dear reader!

And welcome back to another How to with your host, Professor Home Ec. Today I want to talk with you about some real home economics (wink, wink, nudge, nudge): how to remove PMI from your mortgage, because if you bought at least 2 years ago and you have PMI, there is a good chance you should not be paying it.

Removing PMI is actually super simple. PMI, or Private Mortgage Insurance, is placed on your home loan when you put down less than 20%. What it does is insures the bank against your home not being able to sell for the value of the loan. They do this on down payment’s less than 20% just because it’s much more likely that the housing market dip by say 7%, below your 5% down payment and now you’re under water, than by 22% below your hefty 20% down payment. Plus I’m sure they’ve done some risk analysis and people who put down larger down payments are less likely to need to sell in a down market and therefore less likely to foreclose and lose the bank money with an underwater loan.

So, all you need to do to get rid of PMI is prove that your loan is now less than 80% the value of your home. The mortgage company actually makes this very easy for you. All you have to do is:

1. Assess if you are a good candidate for PMI removal
   • Did you put down less than 20% when you bought your home and still owe more than that today? (if you’ve paid down to 80% of the original value of the home, good news! Just call up your lender today and tell them to REMOVE THAT PMI! They won’t automatically do it until 78%)
   • How long ago did you buy? (If >2 years, you are eligible to apply just based on market growth, if <2 years you need to have done significant work to the home to increase it’s value to prove PMI removal)
   • Have you done significant renovations/repairs to the home? (Your value can increase due to the market, or to renovations/repairs done to the home)
   • Have you seen what comparable houses are selling for in your neighborhood? (Check out Zillow! Use recent sales when at all possible, because a list price is just a wish list until someone actually buys)
2. If you are a good candidate, go ahead and call your lender up (some you can even do it online!), and tell them you want an appraisal or BPO (Broker’s price opinion – the much cheaper option (like $150 v $500), take this if you don’t need a full appraisal and the lender doesn’t require it)
3. Pay for the appraisal or BPO upfront
4. Help the appraiser or broker get into your home at an agreed upon date and time to perform a very quick inspection
5. Wait for the appraiser or broker to send the resulting report to the lender
6. Once the lender receives the appraised price, they will check to confirm that your loan is less than 80% of the new price
7. If it is, they will remove PMI from your payment, and in my case they also just reviewed my escrow payment as well and adjusted that down based on actual bills from this year

All in all this took about two weeks from initial phone call to letter confirming that my PMI had been removed (and ~$120 off my monthly mortgage!) Given that the market has been HOT HOT HOT, in many places I would expect just owning a home for more than 2 years, with no significant renovations, may be enough to get your PMI removed. It was for me! And the $150 I paid for the broker has an breakeven of 1.25 months — beat that!