PMI Removal Appraisal

Private Mortgage Insurance (PMI) allows buyers to purchase a home with a down payment of less than 20% or to refinance more than 80% of their home’s value. This insurance typically costs 0.5% to 1% of the loan amount every year, so on a $200,000 mortgage, this could be as much as $167 per month or $2000 per year. This is typically rolled into the mortgage payment and may be quickly forgotten.

Fortunately, once your loan-to-value ratio drops to 80% or less, due to appreciation or principal pay down, you can have the PMI removed, potentially saving a good deal of money. Many people continue to pay, long after they have to.

In recent years, Whatcom and Skagit county home values have increased significantly, so continuing to pay PMI, if you don’t need to, could be a costly mistake. Once you’ve paid the mortgage down to 78 percent of the original appraised value, the lender is required to remove the PMI. This could take quite a few years because it doesn’t take appreciation into account.

The formula to calculate if your loan balance is at 80% or less is: current loan balance/original appraised value = current equity. Ex: $204,000/$240,000 = .85 or 85%. Based on the original appraisal, this would not yet qualify for PMI removal. However, many lenders will allow you to use a new appraisal to determine if you have the required 80% equity, allowing you to remove the PMI much sooner.

With appreciation, the current value could be $310,000, so $204,000/$310,000 = .66 or 66% loan-to-value ratio, qualifying for PMI release. Before getting a new appraisal, make sure that releasing PMI based on a new appraisal is acceptable to your lender. They may have their own requirements.

The Uniform Standards of Professional Appraisal Practice (USPAP) prohibits appraisers from guaranteeing a specific value, so that appraisals will remain an independent opinion of market value. Since other sources of value may not be as reliable, lenders won’t typically accept a Broker’s Price Opinion, an assessor’s tax value, or a Zillow Zestimate, although you may want to check one of those first to help determine if ordering an appraisal will be worthwhile.

At Remington Appraisals, we specialize in Whatcom and Skagit counties, so we closely follow market trends in the area. The savings from removing PMI can often amount to more than the appraisal fee within months. For more information on cancelling PMI, take a look at this Bankrate article, or call us for more information.