Mortgage giants Fannie Mae and Freddie Mac recently announced a new policy allowing homebuyers to make as little as a 3% down payment toward the cost of a home (vs. the previously required 5%), provided one of the borrowers hasn’t owned a primary residence within the past three years. Cash-short buyers everywhere rejoiced at this development.
Still, the opportunity comes with trade offs. Buyers who make down payments of less than 20% are required to buy private mortgage insurance (PMI), which can cost as much as $142.24 per month on a home of $290,000.
Fortunately, this situation doesn’t last for the loan’s entire life. For mortgages that closed on or after July 29, 1999, The Homeowners Protection Act gives homeowners the right to request that their lender cancel PMI on the date when the mortgage’s principal balance is scheduled to fall to 80% of the home’s value when purchased.
Homeowners can request this earlier if they have made extra payments over the years.
Some caveats apply:
- The request must be in writing.
- The homeowner must have a good payment history and be current on their payments.
- The lender may require certification that there are no junior liens (such as a second mortgage) on the home.
- The lender can require proof that the value of the property hasn’t declined below its selling price at the time the loan originated. If it has, it may not be possible to cancel the PMI.
Our brokers can help you determine if you are at the point where cancellation is feasible and provide guidance on how to proceed. Don’t hesitate to contact us, as cancelling your PMI could save you thousands of dollars.