I HEARD I CAN CANCEL MY MORTGAGE INSURANCE, CAN I?
FHA LOANS, HOME LOANS, TIPS FOR BUYERS, TIPS FOR SELLERS
August 12th, 2008
Many homebuyers commonly confuse mortgage insurance with mortgage life insurance. The prior protects the lender from loss if the buyer defaults on their mortgage and is the subject of this blog while the latter pays off the mortgage if the insured dies. Private Mortgage Insurance (PMI) is additional insurance that lenders may require from homebuyers who obtain loans in excess of 80% of the home’s value. The buyer typically pays for this insurance monthly, an additional sum added to and collected with the mortgage payment, that insures the lender will not have a financial loss in the event the buyer defaults on the loan. Naturally, the buyer would like to cancel this insurance once the property attains sufficient equity.
The homeowner may gain this needed equity by:
- The homeowner paying down the principal balance due on the loan exactly as stated on the amortization schedule or by making additional principal only payments.
- An increase in value due to market price appreciation.
- Improvements made by the homeowner.
The Homeowner’s Protection Act(HPA) applies to loans originated on or after July 29, 1999 that are placed on a single-family dwelling that is the principal residence of the borrower. Certain government-backed loans (FHA,VA) as well as loans classified “high risk” aka non-conforming loans (ALT-A) are not covered by this law. States can add additional conditions to the federal law when it applies to cancellation of PMI.
California law on PMI cancellation can be found in California Civil Code 2954.12 and 2954.7. The federal law applies to one unit only property while California law applies to 1-4 unit properties. The borrower can cancel, under federal law, on the date when the principal balance :
- Reaches 80% of the original value based solely on the initial amortization schedule.
- Based solely on actual payments, the principal balance reaches 80% of the original value.
The borrower must also comply with the following conditions:
- Submit a written request to cancel the PMI with the loan servicer.
- Have a good payment history with respect to the loan.
- Payments must be current.
- Satisfy the lender’s requirements showing the value of the property has not declined below it’s original value.
- There is no subordinate lien.
The lender must automatically cancel the PMI if the loan amortization schedule indicates the loan is paid down to 78% of the original value. Again, the borrower must be current on payments.
Under California Law, for loans made on or after January 1,1998, lenders are prohibited from charging or collecting PMI when all of the conditions are met:
- The loan is for personal, family,household, or purchase money purposes and the secured property is owner-occupied 1-4 residential real property.
- The loan balance owed is equal to or lower than 75% of the lesser of the sales price, if the loan was made at the time the property was purchased, or the appraised value of the home at the time the loan was made, for loans made after purchase.
- The payments are current and no 30-day late payments in the past 12 months.
- No notice of default (NOD) has been recorded against the property in the past 12 months.
- The loan was made after January 1, 1998.
For loans made prior to January 1, 1998:
- The request to terminate PMI is made in writing.
- The origination date was at least 2 years prior to the request to cancel PMI.
- The loan is for personal, family, household or purchase money purposes and the secured property is owner-occupied 1-4 residential real property.
- The unpaid balance owed on the note must be 75% or less or either of the following:
A) The sale price of the property at the origination date of the loan provided that the current market value is equal to or greater than the original appraised value, or
B) the current fair market value as determined by an appraisal (lender chooses the appraiser and buyer pays for it).
5. The payments are current and no 30-day lates in the past 24 months.
6. No NOD has been recorded due to a non-monetary default during the 24-month period preceding the cancellation of PMI request.
Too bad these government agencies could not come together and agree on universal rules for canceling PMI!
Fannie Mae, Freddie Mac and Ginnie Mae may be exempt from California PMI cancellation laws.
If you have any specific questions about this or any real estate matter, please don’t hesitate to contact me. I offer free, no obligation market analysis of your real estate holdings. I also provide expert buyer representation. I return calls promptly!
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER
REAL ESTATE PROFESSIONALS GMAC
[...] Go to the author’s original blog: I HEARD I CAN CANCEL MY MORTGAGE INSURANCE, CAN I? [...]
awesome website, very insightful. I like it in deed. I come acoss this website by google search engine. I may read your site monthly and introduce it to my neibourghhood. Please keep it updated. Keep on the good work. – A blog lover
Great guide! I’m all for doing it. The article is actually helpful if you ask me. Reading your current article produces me pleased. At one time, I could learn considerably more knowledge. Thanks considerably.