Real Estate and Home Mortgages - Process to remove PMI?

What's involved, exactly, in having PMI removed from a mortgage?

I've had mine nearly 3 years, paid more than the minimum (not by much, but some). PMI is costing me about $47.06 a month. Come Aug 1st, I will have paid 1835.34 in PMI.

It's my understanding that after 2 years and no late payments, it has to be dropped for the asking OR when the LTV is 80% or less. Not sure it would meet the LTV, but does meet the 2 year requirement.

What's the process for getting it dropped?
What will the mortgage company require?
A new appraisal?
A new credit check/loan info?

I'm going to check with them of course, but wanted to get an idea first.

LTV is 80% or less (LTV = Loan To Value)

Multiply your current loan balance by 1.25%. Your home has to be worth at least this much.

Or, you can get a refinance. The LTV will be based on the current appraised value of your home and new loan amount. Although, I wouldn't suggest this if you rate is better than the rates now.

You can look here on the PMI Act and for more and clearer information:

http://www.ftc.gov/bcp/conline/pubs/alerts/pmialrt.shtm

Just some basics, but I'm sure others will chime in here, so check back. ;)

If your loan was a purchase, once your principle balance reaches 80% of the SALES PRICE (read: not appraised value) you can request it be dropped.
Or, at 78% the lender will drop it automatically.

If your loan was a refinance (including construction perm) then when you reach 80% of the APPRAISED VALUE you can request it be dropped.
Or, at 78% the lender will drop it automatically.

2 years has nothing to with it. That may be the MINIMUM TIME before it can be dropped. I've heard 12 months minimum with PMI (regardless of other factors) and I've been hearing 24 months lately. I wouldn't be surprised if that time frame went up with all of the issues in the mortgage industry these days.

If you feel the value of your home is sufficient, that your balance is 80% of that, or less, you can contact your lender to see how they go about allowing borrowers to drop PMI prematurely. This will be up to the lender. They may require that you pay for an appraisal, but that THEY pick the appraiser. They might let you get an appraisal and they pick another appraiser and see how close they come.
I would be VERY surprised if they would still accept any appraisal a borrower comes up with. Why? Because there are PLENTY of bogus appraisals, or overly generous appraisals, that people get to get out of PMI. That results in premature dropping of PMI, which has come up a lot in cases of foreclosure. However, they might allow it. You have to call to find out.
Shouldn't involve a new application or credit pull.

You can refi, as Addict mentioned, but that's a costly way out of it when you're only paying $45/month. Closing costs alone could equal YEARS of that same PMI payment. I'd advise a refi if BOTH of the following can occur:

*Lower rate--if you're only paying $45/mo, then I'm assuming you have a lower loan amount. If so, then it takes a SIGNIFICANT rate drop to be worth anything

*Shorter loan term--if on 30 years and you've had the loan for 2 years, then refi onto 25 years, 20, 15, 10. Do not refi onto 30 years again, under these circumstances, you can cost yourself a lot of money in the long run on 30 years.

Edit: great link DIYAddict, I'm saving that one.

Does the sales price include my down payment, or just the financed amount?

Sales price 129,495
Settlement charges to borrower 2,801
Gross amount due 132,296
Loan amount 118,196 (less my 14k down)

If I did it right, my balance needs to be 103596 (?) or less before I can request PMI be dropped.

According to my current statement, loan balance is 113,308, so I've got another 10k to drop.

PS: I'm at 6.25%

Without an appraisal, the only sources I have for an estimated value (which means nothing, I know) is the insurance valuation (about 196k, based on sq ft x current building costs) and that Z site (I forget the name) that says about 230k. Homes around the corner are selling in the 240k range and are HALF the size and sitting on a postage stamp, I've got 2400 sq ft and a full acre.

You've got it right. 80% of contract sales price.

If you think you're at that 80% of current value, start doing your homework. Certainly nothing wrong with calling the lender to find out how they handle this. Who knows, might be easier than we think?
Find out how they handle it and then decide what to do from there. Even if it's not at that 80% mark yet, it'll be good to know a year from now or whenever you get there.

You might be able to call an appraiser, mention what you're doing so they relax a bit, and ask them what they'd charge for an informal, verbal value. In other words, just drive by to see that the house is ok from the street and pull a few comps. Should be pretty cheap. If you have your old appraisal, give them a copy so they have the sketch and measurements. That might be enough to tell you if you need to pursue it and put more money into this--or how soon you should do it in the future.

I think this is good to know even if you aren't in position yet to drop it.
That insurance figure may be an estimate to rebuild, which is probably higher than actual value of the house you're in. You could call your agent to find out.

Just a follow up..

I was on the phone with my lender on an unrelated issue and asked about PMI (since the premium wasn't on my previous two statements). They said sure sure, we'll send you the paperwork, send out an appraiser, etc.

About a week later, I get a letter...

"..mortgage insurance premium is required for a minimum of 5 years and will expire after 5 years when a 78% LTV ratio is achieved. It cannot be canceled before the 5 years under any circumstances."

I need a principal balance of 98,962 to cancel the premiums (but again, not before 5 years from the origination date).
So I am stuck with it until at least late 2009.

Don't remember signing up for the 5 year plan.. :wall:

I agree that maybe a re-fi if the new loan amount would be less than 80% of the appraised value?

How are home sales in your neck of the woods, 'dragon? Pretty stagnant down here.