Home Buying in Philadelphia>Question Details

Josh, Real Estate Pro in Philadelphia, PA

I bought a home last year and was required to have PMI. Is this necessary? How can I get rid of it?

Asked by Josh, Philadelphia, PA Fri Dec 7, 2007

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Private Mortgage Insurance must be paid on any mortgage when there is less than 20% equity in the home. For example, if you purchase a home with 10% down, you owe 90% of the total amount, so you are considered a risk and the PMI is insuring that you will pay the mortgage.

Once you have 20% equity in the home (from payments made or when your home increases in value) you can have the PMI canceled. But - at that time, you will have to contact the mortgage company and let them know. It is not automatic.
3 votes Thank Flag Link Fri Dec 7, 2007
If you don't have at least 20% equity in your property and you hold a mortgage, lenders will require you to carry PMI. Since you only bought your home last year, most likely you haven't gained 20% equity unless you purchased it for below market value. The way to prove you have 20% equity is to get your property appraised again. For example, if you have a $80,000 loan on the house and the appraised value is $85,000, you only have about 6% equity. The appraised value needs to be at least $100,000 in order for the lender allow you to drop the PMI. Another option may be to refinance and take out 2 loans. One for 80% and the 2nd loan for (5-20%).
3 votes Thank Flag Link Fri Dec 7, 2007
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