Can a high appraisal eliminate PMI?
Private Mortgage Insurance (PMI) is typically required when a borrower makes a down payment of less than 20% on a home loan. This additional monthly cost can add up over time, but there is a way to potentially eliminate it. If you have a high appraisal on your home, it could be the key to getting rid of PMI.
When you first purchased your home, the lender likely required an appraisal to determine its value. If your home has increased in value since then, you may be able to request another appraisal to show that your loan-to-value ratio is now below 80%. This is the magic number you need to reach in order to potentially eliminate PMI.
Before requesting a new appraisal, check with your lender to see if they have any specific requirements or guidelines for removing PMI. They may have their own process in place that you need to follow. Once you have the green light, hire a licensed appraiser to perform the appraisal. If the appraised value comes in higher than expected, it could be your ticket to savings on your monthly mortgage payment.
Keep in mind that removing PMI is not guaranteed, even with a high appraisal. Your lender will still need to review the appraisal report and ensure that your loan-to-value ratio meets their criteria. Additionally, some loans may have specific requirements or restrictions when it comes to PMI removal, so be sure to read the fine print.
In conclusion, a high appraisal can potentially eliminate PMI, but it is not a guarantee. It is worth exploring this option with your lender to see if you can save money in the long run.
FAQs:
1. How is PMI calculated?
PMI is typically calculated based on the loan amount and the down payment percentage. The lower your down payment, the higher your PMI payments may be.
2. Can I cancel PMI once I reach 20% equity?
In some cases, yes. Once you reach 20% equity in your home, you may be able to request PMI removal from your lender.
3. How often can I request a new appraisal for PMI removal?
There may be limitations on how often you can request a new appraisal for PMI removal. Check with your lender for their specific guidelines.
4. Can I use an automated valuation model (AVM) instead of a traditional appraisal?
Some lenders may accept AVMs for PMI removal, but it is best to check with your lender first to see if this is an option.
5. Will a high appraisal increase my property taxes?
A high appraisal could potentially lead to an increase in property taxes, as tax assessments are often based on property values.
6. How much does a typical home appraisal cost?
The cost of a home appraisal can vary depending on the location and size of the property, but it typically ranges from $300 to $500.
7. Can I challenge the results of an appraisal if I disagree with them?
Yes, you may be able to challenge the results of an appraisal if you believe there were errors or inaccuracies in the valuation.
8. Can a refinance help me eliminate PMI?
Refinancing your loan may be another option to potentially eliminate PMI, especially if your home has increased in value since you first purchased it.
9. What happens if I stop paying PMI?
If you stop paying PMI without authorization from your lender, they may consider it a breach of your mortgage agreement and take action accordingly.
10. Can I negotiate my PMI rate with my lender?
PMI rates are typically set by the lender and are not negotiable. However, you may be able to shop around for a better rate when initially securing your loan.
11. Will paying extra towards my mortgage help me remove PMI sooner?
Paying extra towards your mortgage can help you build equity faster, which may eventually help you reach the 80% loan-to-value ratio needed to remove PMI.
12. Are there any alternatives to PMI for low down payment borrowers?
Yes, there are alternatives to PMI, such as lender-paid mortgage insurance or piggyback loans. These options may have their own pros and cons, so it’s important to weigh them carefully.