When Should You Seek an Appraisal to Eliminate PMI?

East Coast Appraisal Service • September 12, 2022

Private mortgage insurance, or PMI, allows lenders to offer home loans to buyers without the traditional 20 percent down payment. This insurance covers the risk of financing a mortgage with less equity from the buyer. Should a buyer fail to make payments later on, PMI helps the lender recover its losses. But for most homeowners, PMI mainly represents an extra fee on their monthly mortgage statement.

If your home loan still has PMI attached, you might wonder when it's time to schedule an appraisal to remove it.

When You Meet the Terms of Your PMI Agreement

Under typical mortgage terms, PMI remains in effect until the loan balance reflects 80 percent of the original purchase value. A house bought for $200,000, for example, may carry PMI fees until the loan is paid down to $160,000. The specific terms for each mortgage vary by lender. Many agreements wait until the loan has reached 78 percent of the home's value to automatically cancel PMI. To remove it earlier, you'll need to have the house appraised and submit a formal request.
Additionally, if your loan is still relatively new, additional restrictions may apply. You may need to hit an even lower loan-to-value ratio for several years after signing. Before proceeding, check your loan terms or speak to your loan officer to learn the details of the agreement.

When Your Loan Is in Good Standing

Private mortgage insurance safeguards lenders from borrowers who fail to keep up with payments. Because of this, your loan must be in good standing to qualify for PMI removal. That means no missed payments or other complicating factors, such as a lien on the home. Assuming your PMI agreement is eligible and your payments are current, you can move forward with the appraisal process to prove your loan-to-value ratio.

When Home Prices Increase

Buying a home remains one of the best investments available today. Even as the market cools off, home values are likely to keep increasing for the foreseeable future. If your loan is more than a few years old, your home's market price may have risen naturally. Take, for example, the $200,000 home described earlier. An appraisal might find that the house is now worth $250,000. In that case, your loan balance would only need to be about $200,000 to qualify for PMI removal.

When You Finish Renovations

Of course, you can also take steps to improve a house's value more quickly. Renovations require an investment of money and time on your part, but they can significantly increase the market price of a home.

Consider projects like new flooring, landscaping, a kitchen remodel or replacing alliances to present your property in its best light. Wait to schedule an appraisal until all renovations are finished, the house is tidy, and its landscaping is maintained for an accurate valuation.

When You Want to Refinance

Refinancing makes sense when you're seeking a lower interest rate, but it can also eliminate the PMI on a property. A new appraisal is necessary while refinancing. If at this time your loan-to-ratio value falls below 80 percent, the new mortgage won't need PMI. In this case, PMI removal is not the main goal, but when combined with a lower interest rate, it could lead to major monthly savings.

Eliminating PMI on a mortgage takes some effort on your part, but smaller monthly payments are often worth the investment. And thankfully, most professional appraisals are quick and painless. If you believe your home is ready for an appraisal to remove PMI, contact us at East Coast Appraisal Service today.

Our expert appraisers will be able to help you through the process and offer an honest assessment of your property's current value.

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