Private Mortgage Insurance (PMI) is required by lenders when a buyer’s down payment is less than 20% of the home’s purchase price. Many homeowners are curious about whether they can get rid of PMI by obtaining a new appraisal.
**The short answer is yes, it is possible to get rid of PMI with an appraisal, but there are certain conditions that need to be met.**
To remove PMI with an appraisal, the following criteria typically need to be fulfilled:
1. **Loan-to-Value Ratio:** The homeowner must have a loan-to-value ratio of 80% or less. This means that the remaining mortgage balance should be no more than 80% of the home’s current appraised value.
2. **On-time payments:** The homeowner must have a good payment history and be current on their mortgage payments.
3. **No second mortgages:** If there are second mortgages or home equity loans on the property, they must be factored into the loan-to-value calculation.
4. **The appraisal must be ordered by the lender:** The appraisal must be conducted by a professional appraiser chosen by the lender to ensure accuracy and impartiality.
5. **Market value:** The home’s value must have increased since the original purchase to meet the necessary loan-to-value ratio.
6. **No substantial property damage:** The property should be in good condition with no major damage that would impact its value.
7. **Compliance with lender’s guidelines:** The homeowner must meet all of the lender’s specific requirements for removing PMI.
8. **Reaching out to the lender:** It is important to contact the lender and discuss the possibility of removing PMI with an appraisal before proceeding.
9. **Financial stability:** Lenders may require homeowners to demonstrate financial stability and potentially provide additional documentation to support the removal of PMI.
10. **Cost of the appraisal:** The cost of the new appraisal is typically the responsibility of the homeowner and can range from a few hundred to a few thousand dollars.
11. **PMI removal request:** The homeowner may need to formally request PMI removal from the lender and provide evidence of meeting the necessary criteria.
12. **Consider refinancing:** In some cases, refinancing the mortgage may be a more feasible option to get rid of PMI, especially if current interest rates are lower than when the original loan was taken out.
While removing PMI with an appraisal is possible, it is important for homeowners to carefully assess their individual situation and consult with their lender to determine the best course of action. Additionally, it is essential to consider the costs and potential benefits of pursuing PMI removal through an appraisal before proceeding with the process.