PMI is insurance a borrower must pay when the loan-to-value (LTV) of the home is greater than 80%. It’s typically required by lenders to protect themselves in case the borrower defaults on the loan. Once the borrower builds at least 20% equity in the home, they can often request for PMI to be removed.
When a borrower’s loan with Private Mortgage Insurance (PMI) reaches an 80% loan-to-value (LTV)—based either on the original property value (the lesser of the purchase price or original appraised value) or on the current appreciated value—the Homeowners Protection Act (HPA) gives the borrower the right to request PMI removal from their mortgage servicer.
To successfully petition for PMI cancellation, the borrower must:
- Have a good payment history: No payments 60+ days late in the past 24 months and no payments 30+ days late in the past 12 months. (This generally requires the loan to be at least two years old.)
- Have no subordinate liens on the property (a title search may be required).
- Prove the current property value supports an LTV of 80% or less (an appraisal ordered through the mortgage servicer is typically required).
If all conditions are met, the mortgage servicer is required to remove the PMI in accordance with the HPA.
No PMI premiums may be collected from a borrower more than 30 days after the PMI requirement has been terminated or canceled. Additionally, the mortgage servicer must refund any unearned PMI premiums paid by the borrower within 45 days of the PMI cancellation date.
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