How Much Equity Do You Need to Remove PMI?

Private mortgage insurance (PMI) protects the lender, not you. If your home in Phoenix or the West Valley has gone up in value since you bought it, you may be able to stop paying PMI earlier than the original schedule. Here’s how it usually works on conventional loans, and where an appraisal fits.

This is general information. Your loan servicer’s rules decide, so call them first.

Three ways PMI usually ends

1. You ask, based on the original value. Under the federal Homeowners Protection Act, on most conventional loans you can ask to cancel PMI once your balance reaches 80% of the home’s original value (generally the purchase price or original appraisal), if you have a good payment history and meet the servicer’s other requirements.
2. It ends automatically. PMI generally terminates when the balance is scheduled to reach 78% of the original value, if you’re current.
3. You ask, based on today’s value. This is where rising home values help. Many servicers will consider cancelling PMI if a new valuation shows enough equity, even if your balance hasn’t reached 80% of the original value.

FHA loans work differently; FHA mortgage insurance has its own rules.

Typical thresholds when you use today’s value

For loans owned by Fannie Mae, for example, the servicer’s guide for a one-unit home you live in generally requires a loan-to-value of:

• 75% or less if the loan is two to five years old,
• 80% or less if the loan is more than five years old,
• 80% or less when the two-year wait is waived because substantial improvements (such as a kitchen or bath renovation or added square footage) raised the value.

There are payment-history requirements too, such as no payment 30+ days late in the last 12 months. Other investors and lenders have their own rules. Ask your servicer which apply to your loan.

Who orders the valuation?

This is the part many homeowners miss. Some servicers order the valuation themselves (Fannie Mae’s guide, for example, has the servicer obtain it), and others will accept an appraisal from an appraiser they approve. Ask your servicer before you order anything:

• “Can I request PMI cancellation based on current value?”
• “Who orders the appraisal, and do you accept one I order?”
• “What loan-to-value do I need, and what payment history?”

Where an independent appraisal helps

Even if your servicer orders its own valuation, an independent appraisal can tell you whether you’re likely to qualify before you pay for the servicer’s process, and it documents improvements and square footage clearly. If your servicer accepts a borrower-ordered appraisal, ask them for their requirements and we’ll prepare it to match.

Quick math

Divide your loan balance by the LTV you need. Example: a balance of 300,000 at 75% LTV means the home would generally need to be worth at least 400,000 (300,000 / 0.75). At 80% LTV it would need 375,000.

Get a clear answer on your home’s value

West Valley Appraisal Services prepares residential real estate appraisals for PMI removal throughout Phoenix / Maricopa County, Arizona.

Learn about PMI removal appraisals, see market value appraisals, or call (602) 717-8450.

Written by Jason Clow, State Certified Residential Appraiser #21559. This article is general information, not financial or legal advice. Your servicer’s rules decide.