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I made a big payment to my loan to build equity and remove my PMI. Reading guidelines on consumerfinance.gov and it states -

"If the value of your home has decreased below the original value, you may not be able to cancel PMI at this time. "

Currently my LTOV is 74%. So hypothetically if the home price decreased by about 5000, my LTV would still be less than 78%

I was wondering if I am still eligible to remove PMI? I talked with my lender and they say I need an appraisal, so just want to make sure I am not wasting my money if there is strict clause for home value depreciation and so rather refinance my loan to remove PMI.

  • I meant loan to original home value in all instance – user3613720 Oct 9 '18 at 15:26
  • What are the comps in your area? Can you get an ball park estimate from a realtor? – Pete B. Oct 9 '18 at 15:31
  • Hart CO, reading from stuff online, it states lender can ask for appraisal. In my case, lender is BS and thus I want to make sure before spending $$ on appraisal – user3613720 Oct 9 '18 at 16:24
  • Pete B, my real estate agent has given me value $10k above original value. The thing is that my lender said they will be using BPO to do appraisal and not full appraisal. my current lender is all BS n doesn't answer my call well and thus want to be sure before applying for PMI removal... Since current rates are high for refi, I am kind a stuck with this lender for now until it's unbearable. – user3613720 Oct 9 '18 at 16:27
  • @user3613720 I think my edit clears up the slightly confusing language, but don't hesitate to alter if not. – Hart CO Oct 9 '18 at 19:14
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PMI must be removed when LTV is scheduled to hit 78% based on the original value of the home and the original amortization schedule (Automatic Termination). At 80% LTV based on current value you may get it removed but at that point there are additional caveats like a good payment history, no additional liens, etc. (Borrower-Requested Cancellations).

From the Federal Reserve's Compliance Handbook for Homeowners Protection Act:

There is no provision in the automatic-termination section of the act, as there is in the borrower requested PMI cancellation section, that protects the lender against declines in property value or subordinate liens. The automatic-termination provisions make no reference to good payment history (as prescribed in the borrower-requested provisions) but state only that the borrower must be current on mortgage payments.

So, since you have paid extra to get below 78% ahead of schedule, the Automatic Termination rules don't apply and you are subject to the Borrow-Requested rules which can include an appraisal.

If you were at 78% based on original value and amortization schedule they are obligated to remove PMI. They should have a instructions for requesting removal of PMI, and there would be no reason for that to include an appraisal. If they declined to remove PMI without an appraisal in this context, you'd need to file a complaint with the CFPB or pursue legal action.

You'll want to review the schedule to see how far ahead you are to decide if the appraisal is worth it.

FHA loans have different rules for their Mortgage Insurance Premium, I assumed a traditional loan since you mentioned PMI.

Misc Sources:
- CFPB
- NOLO

Edit: I had completely missed that the 78% Automatic Termination is based on schedule not actual LTV, thanks to @Guest5

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    I don't think you're quite correct about auto termination at 78 percent LTV. The CFPB website (and the underlying law) give auto termination at the time the loan is scheduled to reach 78% LTV. Thus, if you prepay to below 78%, it seems to me that it could be the case that your lender can still ask for proof that your) property value has not decreased. – Guest5 Oct 9 '18 at 22:26
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    @Guest5 Ah you nailed it, I missed that completely. – Hart CO Oct 9 '18 at 22:35
  • @Guest5 I also read the similar thing reading through different content on credible websites about 78% LTV...The thing is that information is not made clear to homeowners and this leads to confusion. – user3613720 Oct 10 '18 at 16:50
  • @HartCO and Guest5 thanks for the information. So reading through the comments, even if my original home prices decrease but if my current LTV(not LTOV) based on appraisal is less than 78%, the lender cannot deny removal of PMI, right? – user3613720 Oct 10 '18 at 17:01
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    Update - Submitted application and PMI is removed now...yay – user3613720 Nov 7 '18 at 15:55

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