The Window of Opportunity to remove Mortgage Insurance early may be closing. Here’s what you need to know.
No one likes paying mortgage insurance.
Want in on a secret? Homeowners don’t get any benefit from it. It’s strictly to protect the lender. Chalk it up to a necessary evil for many buyers buying a home. With home prices being elevated, most first-time buyers cannot come up with the 20% down needed to avoid mortgage insurance. In fact, according to the National Association of Realtors, the average down payment for first-time homebuyers is 7% https://cdn.nar.realtor/sites/default/files/documents/2021-highlights-from-the-profile-of-home-buyers-and-sellers-11-11-2021.pdf .
Want to get out of it?
For conforming loans that don’t fall within the FHA or VA categories, the mortgage insurance will drop off automatically once the loan is paid down to 78% loan-to-value ratio. This value is based on the home loan owed being lower than the appraised value or purchase price at the time of purchasing the home.
Don’t worry, though! There is an option to remove mortgage insurance early WITHOUT refinancing. Many lenders will allow you to assess your home’s value after a specific amount of time, and if your home's current value gives you less than an 80% Loan-to-Value, you may be able to drop the mortgage insurance early. There is usually a cost for this, so make sure that if the house does not assess for enough value and there is a risk that you will waste your money, you don’t commit.
This risk, though, is asymmetrical. I’ll tell you what I mean.
The sum of your future PMI payments will almost always exceed the cost of getting this assessment done.
Not all lenders will allow this, so you will need to call and check with your mortgage services to see if this is an option.
What does the Value of Your Home mean?
According to the NAR, home values were up 16.9% nationwide in 2021. This stands to reason that many of the folks who bought into 2020 and 2021 may be eligible to remove their mortgage insurance early.
The signs of a slow-down are looming, meaning the options may not last as long. According to Corelogic, recent reports of home prices decreased by .7% on a month-over-month basis in August 2022 https://www.corelogic.com/intelligence/u-s-home-price-insights-october-2022/ .
Sure, it’s a slight decrease compared to the colossal gains experienced over the last couple of years.
What happens if the trend continues? If prices continue to go down on a month-over-month basis, many homebuyers will lose the opportunity to get rid of their mortgage insurance early.
Let’s Talk
This is precisely why you need a Mortgage Lender to help you navigate your options and review your strategies before, during, and after you purchase your home. One of the best ways to build wealth is to preserve it. That’s precisely what we’re trying to do here. By qualifying to drop unnecessary Mortgage Insurance and pocketing the extra payments, you are positioning yourself for future investments, and the ability to make smarter financial decisions for you and your family.
Please feel free to call or email me if you have any questions.
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