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When can I get rid of mortgage insurance?

On a conventional one unit Primary or Secondary residence (loans originated after 1999):

The Homeowners Protection Act of 1998 requires mortgage insurance to be canceled automatically when your loan balance is scheduled (based on the original amortization schedule) to reach a value of 78% of the purchase price.

Canceling mortgage insurance outside of that is up to the Loan Servicer.  Servicers can place additional rules on top of what Fannie Mae and Freddie Mac require, but here is what Fannie Mae and Freddie Mac require:

Canceling mortgage insurance based on original sales price/value:

Loan balance to value ratio must have reached 80% or less.  Other requirements:

  • No 30 day lates in past 12 months, nor 60 day lates in past 24 months on mortgages on property
  • The servicer will order an appraisal, or complete an automated valuation.  This is to warrant the value, and if there is a cost, it’s at the borrower’s expense
  • Servicer must confirm that there are no additional liens against the property (like a second trust, a home equity line of credit)

Canceling mortgage insurance based on an increase in value above original sales price/value:

If fewer than 2 years have elapsed since loan origination, the borrower must justify the increase in value by documenting substantial property improvements.

  • No 30 day lates in past 12 months, nor 60 day lates in past 24 months on mortgages on property
  • The servicer will order an appraisal, or complete an automated valuation.  This is to warrant the value, and if there is a cost, it’s at the borrower’s expense
  • Servicer must confirm that there are no additional liens against the property (like a second trust, a home equity line of credit)

If the loan is on a multi-unit property or was originated as an investment property, the rules differ and are significantly more strict when removing mortgage insurance.

On an FHA loan:

As of June 2013, most FHA loans will include mortgage insurance for the life of the loan.  Mortgage insurance can only go away if you refinance out of, or pay off, an FHA loan.  The exception to this rule is that if when a home is originally purchased, if the borrower puts down 10% or more, then they pay mortgage insurance for 11 years.  Then the mortgage insurance drops off.

On a VA loan:

VA loans do not have a recurring monthly mortgage insurance premium, as the funding fee is collected upfront at settlement.

 

Want the fine print? Got questions? Email me for the document that lays out the rules in detail.  ajaffe@firsthome.com