About a month ago I shared a video here talking about removing PMI from your mortgage. I wanted to update that video because I took my own advice and I did it! I was able to get my monthly mortgage reduced $131 every month by having my PMI removed.
If you did not catch that video, I’ll bring you up to speed. If you put less than 20% down when you bought your home, chances are, every month a part of your mortgage payment goes to pay PMI. This can be hundreds of dollars paid every month.
What is PMI?
It’s Private Mortgage Insurance. It protects the lender, not the borrower by the way, if you stop making payments on your loan. It’s usually on any conventional mortgage where the down payment on the home was less than 20%.
It can be paid by a monthly premium (which is the most common), it can be paid by a one-time upfront premium that you pay at closing, or it can be a hybrid of the two.
The cost of PMI is determined by the total loan amount and your credit score and can be as high as 2.25% of your mortgage. In other words, a lot of money.
So my question to you is,
Take a look at this.
In June of 2018, the average price for a home in Rockwall County was $353,132. Just three years later, the average price has increased to $438,268. That’s an increase of 24%. Some pockets of Rockwall have seen even higher increases.
This made a lightbulb go off for me for all of my clients who purchased three years ago and only put 5% down on their mortgage. It’s quite likely they now have enough equity to remove PMI from their mortgage.
How can you get rid of this expense?
You could pay down your loan to reach 20% equity in your home based on your current mortgage. Or, you could refinance. Before starting the process of refinancing your home, you should keep in mind there are costs associated with going through this process. So you want to make sure you’re talking with a lender who will do a cost vs. savings analysis to see how long it will take you to break even on the cost of the refinance versus only looking at your monthly savings.
The third thing you can do, and it’s what I did, is contact your current lender to ask if you can remove PMI with a new appraisal. In my case, my lender said they would allow it if the appraisal shows that I now have a loan to value ratio of 75%. The risk to me was the cost of the appraisal of $550.
Well, because as a Realtor I happen to have access to sales information, I was able to determine that it was worth it to me to take that risk. Now, I can’t give an actual appraisal amount because I’m not a licensed appraiser, but I can get a good idea.
The good news for me, I was right to get the appraisal done. The appraiser determined that my house had increased 30% in value in just a little over two years. This means I was able to remove my PMI and I’m now saving $131 a month on my mortgage.
If that’s information you’d be interested in having, I want to help you and I’d love to get that to you. If you want to see what homes comparable to yours have sold for recently to determine if it’s worth it to you to do this, I can get you that information. This is something that we provide to our clients whenever they’re considering a sale and I’d be happy to offer this for free to you.
I will warn you about going to automated value generators. Those tools use algorithms to determine value and fail to take into account the specifics on how your home compares to others and actual sale prices since Texas is a non disclosure state and those tools don’t have access to the actual sales numbers from the MLS.
Here’s what you do to get started: go to livinginrockwall.com and click on the button that says, “Get My Equity Analysis.” Provide some details on your property and your current loan payoff amount and I’ll get that analysis to you within three business days.
If that sounds like something you’d be interested in, that website again is LivingInRockwall.com.
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Jennifer Shannon is a Texas real estate agent and broker, licensed since 2006.