Eliminating Mortgage Insurance

For loans originated after July 1999, there are two methods to eliminate mortgage insurance (MI).  The first is that a lender is required by law to automatically eliminate MI when the loan balance drops to 78% of the original sales price of the home (this does not include up-front MI on an FHA loan which is never recoverable).  For FHA loans only, there is also a rule that the homeowner has to wait at least five years before cancelling the MI (this rule does not apply if original amortization term of loan is 15 years or less).

The second method allows the homeowner to utilize appreciation by having a current appraisal done.  This method only pertains to Conventional loans.  Once the appraisal has been done by a lender-approved appraiser, the MI will be eliminated if the loan balance is reduced to 80% or less of the value of the home.  There is a seasoning requirement with this method; however, as the homeowner has to wait two years before having the appraisal done.

Lenders are supposed to have mechanisms in place to automatically reduce the MI when the loan balance reaches 78% of the original price, otherwise it is the homeowner’s responsibility to contact the lender in writing to make a request to eliminate MI.  Also, the borrower can’t have been more than 30 days delinquent on a mortgage over the previous 12 months.

March 18, 2011 by · Leave a Comment

About James

James A. Williamson is currently the Sr VP of Sales Development for Shelter Lending Services (formerly Fairfield Mortgage). James joined Shelter in 1994 and was the company's top Loan Officer in GA for 20 straight years helping over 2500 families finance their homes. James now oversees an incredible group of Loan Officers in Atlanta while further building Shelter's Atlanta business.

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