How do you remove Private Mortgage Insurance PMI after purchasing a home? That is a good question. Hello and Happy April to everyone.Charles McShan with Century 21 Universal in Chicago, Ill. My last blog post answered the question of purchasing a home in 2025 with a minimal down payment. I thank everyone for their comments. Yes, the first thing is to buy that home of your dreams. Yes, home prices are rising and are not going down anytime soon, short of a major recession/depression. We are in the midst of trade and tariff wars now. In addition, rental prices are going through the roof. In the Chicagoland area, three-bedroom rentals are starting around $1.800 and topping off in some places, over $3.000 a month. Who can pay these rental fees? The millennials are making big bucks and can afford this rental fee. That leaves the baby boomers and others between a rock and a hard place. So, it would be economically wise to consider buying a home for the long haul.
But you might say I do not have $ 30,000 or more in a bank account. Well, if you had that much money in the bank, maybe the point of this blog post might not worry you, but your credit is good enough that you can buy a home with a small down payment. The drawback to buying a home with little money down is that your mortgage payments will be higher, and since you did not put down around 20% of the home’s purchase price, you will be paying PMI. So, first things first. Congratulations, you fought through multiple offers, and your bid was accepted. You are now the proud owner of a home. Instead of paying rent, you will be paying a mortgage note with a PMI payment included. So, for those who want to know.
Article Guide
What is Private Mortgage Insurance, or PMI for short?
Private Mortgage Insurance, or PMI for short, is an insurance policy that protects the lenders against loss if a borrower defaults on a conventional mortgage with a down payment of less than 20% of the home’s value. This policy does not protect you, the borrower, so you could face foreclosure if you fall behind in your mortgage payments. More on that subject later. So, on the positive side, PMI can help you qualify for a loan you might not otherwise get. On the negative side, it will most likely increase the cost of your loan. So, before answering the above question of not paying PMI, let’s explore how the new homeowner will pay this PMI fee. So let’s get into it.
How do I pay for PMI?
There are around three ways to pay off this fee. Disclaimer! Always ask your lender for their advice. Here are the three main ways to pay for it.
1. The most common way is a monthly premium. This type of fee is shown on your Loan Estimate and Closing Disclosure on page one in the projected Payment section and is added to your mortgage payment.
2: The lender might ask you to pay for PMI with a one-time upfront premium payment at closing. This price will be shown on your Loan Estimate and Closing Disclosure, page 2, section B. Most homeowners are struggling to come up with the down payment and closing costs, and now, due to the new rules, they might have to pay part or all of the compensation owed to their agent. Many homebuyers will not have this extra money lying around. If you are among the few who can pay that upfront fee, please remember this important fact. If you move or refinance your loan, you might not be entitled to a premium refund.
3: The next option is to pay both up-front and monthly premiums. This premium will be shown on page 2 in section B. The monthly premium will be added to your monthly payment on your Loan Estimate and Closing Disclosure on page 1 in the Projected Payment section. Please ask your loan officer to help you calculate the total costs to see which plan will benefit you financially.
Are there any other types of loans out there on the market?
Yes, there are more options.
1. If you do not want to pay PMI, some lenders have conventional loans for which you pay a higher interest rate and pay no PMI. This could be advantageous depending on how long you stay in your home. Always consult a tax expert to see if this will put you in a different tax bracket.
2: If you have read my posts, you already know about FHA loans. Those types of loans have a similar PMI package, and that package stays with the home for the life of the loan, so be informed. You can read that post by clicking the link here. click here
So, how do you remove Private Mortgage Insurance after purchasing a home?
Answer: Most homebuyers can not remove PMI from their monthly payment. If they had the additional money in the first place, they would have put down 20% or more when they purchased the home, then the PMI would not have been required. If the homebuyers could put down 20% or more as the down payment, their mortgage interest rate would have been much lower. But let’s be real. How many homebuyers can wait to save up to 20% of the home selling price in this economy of uncertainty? Home prices continue to rise, and you might not qualify for a home loan next year as you do right here and now in 2025.
The Homeowners Protection Act of 1998 requires mortgage lenders or servicers to automatically cancel PMI when the loan-to-value (LTV) ratio reaches 78% of the home’s purchase price, which can take up to 15 years. You can also talk to your lender and have the lender terminate PMI when you reach the 20% mark, as long as you are in good standing with your payments, there it is. If you pay more on the principal, you can reach that 20% price sooner.
You can also refinance when and if the interest rates drop. It costs money to refinance. Nothing is free in this world. In the meantime, relax, do not stress yourself out. You wanted to be a homeowner. Well congratulations! You made it. Enjoy that home ownership PMI and all. Nationwide rental prices have been high. Now, Chicagoland renters are feeling the same pain. Your monthly mortgage note will mainly be the same, minus property taxes increases for the duration of the loan.On the other hand, rental prices in Chicago are soaring and out of control. That’s a story for another post. But for right now, you are in good standing. Enjoy your home.
Conclusion!
Speaking of being in good standing, no one but God knows what tomorrow will bring. During their first 100 days, the new administration has brought about massive layoffs and terminations. Tariffs and trade wars are dominating the headlines. Inflation is driving up the costs of everything from eggs to gasoline, and many cannot keep up with the increasing costs. Something is going to give. Some people are back in the situation they faced during the coronavirus pandemic. Some homeowners are feeling the pain and have missed mortgage payments. Some are asking this question. I am missing mortgage payments. How many can I miss before they try to foreclose on my home? Good question. I will talk about that subject soon. Take care, be safe. I welcome all comments and thoughts as long as they are kind.
Charles McShan
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