Get Rid of Your Private Mortgage Insurance
If you have Private Mortgage Insurance, it’s probably because you were required to get it when you took out your mortgage. PMI protects the lender in case you default on your loan, but it’s a waste of money for the borrower. In most cases, you can get rid of PMI if your home has increased in value since you bought it. Here are six ways to get rid of Private Mortgage Insurance.
Refinance your mortgage
If your home has appreciated since you bought it, refinancing your mortgage could allow you to get rid of PMI. By refinancing, you’re essentially taking out a new loan with different terms, so you won’t have to pay PMI if your loan-to-value ratio is now below 80%. Refinancing can also lower your interest rate and your monthly payments, so it makes financial sense to explore this option. However, be sure to consider the closing costs associated with refinancing before you commit. It may take several years for the savings on a new mortgage to outweigh the closing costs.
You should also look into loan programs that don’t require PMI but do have slightly higher rates and fees than traditional mortgages. There are specialized loans available for veterans and people with low-to-moderate incomes, as well as jumbo loans for high-value properties. These types of mortgages could be suitable alternatives if you want to avoid paying PMI altogether. Talk to your lender or a real estate agent to learn more about these options.
Make a large down payment
By having an LTV of 80% instantly by making the 20% down payment, you never have to make the PMI payment. This allows you to save hundreds of dollars each month on your mortgage payments, while also protecting your credit score and building equity in the process. With an LTV of up to 80%, you can even get access to lower interest rates which further increase your savings over time. Furthermore, having a lower LTV helps when it comes time to refinance or take out additional loans as lenders may be more willing to work with you if they are able to provide you with competitive rates and terms despite the higher risk associated with a high loan-to-value ratio.
Additionally, a lower LTV gives you more financial flexibility and freedom as you have more available borrowing power than if your loan had a lower value. By taking advantage of this extra borrowing power, you can use the extra funds to invest in yourself or your business, purchase a second home or even renovate your current property. Finally, having an LTV of 80% offers you peace of mind knowing that, should anything happen to go wrong with your finances and you’re unable to make payments, you won’t be on the hook for any out-of-pocket expenses if the lender needs to recoup their losses from selling off your home. Ultimately, having a low LTV is a great way to get ahead financially and build wealth over time without taking on too much risk.
Have a high credit score
If you’re looking to reduce your PMI, the first step is to work on improving your credit score. Make sure that all of your payments are made on time, don’t apply for new credit cards or loans, keep balances low on any existing debt, and get a free copy of your credit report. All of these actions can help improve your scores over time and lower your PMI costs.
Once you have improved your credit score, be sure to contact your lender to see if they will give you a better rate on PMI based on this new information. You may also want to shop around with other lenders who may offer competitive rates depending on your credit score. By taking the time to improve your credit and shop for a better PMI rate, you can save yourself hundreds of dollars each year.
Combine finances with your Significant Other
By having your significant other alongside you, your income is stronger and you can tackle your debts much easier. This will provide you with a much better credit history. Be sure to both remain financially responsible, though. Work together on a budget and discuss your financial goals so that you can stay on the same page and make progress toward improving your credit score. This can also work in reverse – if you have good credit and your partner or spouse has bad credit, then joining finances may help them improve their credit score over time as well.
Another way to improve your credit is to start building up positive payment history by making regular payments on time for any existing debts or accounts. Your payment history makes up 35% of your overall FICO score and is one of the most important factors lenders take into consideration when determining whether they should approve loan applications. If you’ve been having difficulty making all of your payments on time due to financial hardship, consider enrolling in a debt management program or working with a credit counselor. They can help you create an affordable budget and make payment arrangements that are manageable for your current situation.
It’s also important to keep track of your credit utilization ratio — the amount of money you owe compared to your total available credit limit. This accounts for 30% of your overall FICO score. To improve this ratio, try not to exceed more than 30% of your available credit, ideally less than 10%. You can also take out new lines of credit, such as a personal loan or secured line of credit, to show lenders that you can responsibly manage multiple forms of borrowing and repayment.
Even if you do not make 20% of the down payment, by having a strong income combined with your significant other, you can make consistent add on principal payments. What this does is it allows you to bring the Loan to Value under 80% sooner than expected. By doing this, you can avoid Private Mortgage Insurance (PMI) which could cost you several hundred dollars a month.
Convince your lender to drop PMI
You may be able to convince your lender to drop PMI. Be sure to review all of the terms in the loan documents before proceeding and make sure this is an acceptable option given your individual circumstances. Some lenders will require additional paperwork and fees to drop PMI, so be prepared for that as well.
In most cases, to convince your lender to drop PMI, you must show that the property value has increased or that you have made significant improvements to it. For example, if you purchased a house for $200,000 and the current estimated market value is now $250,000, your loan-to-value ratio has improved enough for the lender to consider dropping PMI. You can also show evidence of major improvements such as renovations or additions—this could include proof of materials used and labor costs associated with the work done.
In addition, some lenders will require an appraisal from a licensed appraiser in order to make sure the property value has actually increased since the loan was taken out. You may be asked to pay for this appraisal, so make sure to factor that in when making your decision.
Finally, don’t be afraid to negotiate with the lender and make a case for why you should not have to pay PMI anymore. Explain how taking on extra costs associated with dropping PMI may reduce your overall loan payments and benefit both parties. Many lenders are willing to work with borrowers who are serious about improving their financial position. Have all documents ready prior to speaking with the lender and be prepared to discuss your situation in detail—this will help you get the best outcome possible.
Getting rid of the PMI on your mortgage can help you save hundreds of dollars a month and improve your financial position. By improving your credit score, negotiating with the lender, or making add on principal payments, you can work toward eliminating private mortgage insurance from your monthly payments. Take the time to understand all of the implications associated with dropping PMI before making any decisions—this will ensure that you make the right choice for your individual circumstances.
You now have all the tools necessary to reduce or remove your PMI costs. With dedication and hard work, you can improve your credit score, build a better relationship with lenders, and drop PMI – ultimately giving you peace of mind in managing your monthly budget.