Understanding PMI (Private mortgage insurance) and How an Appraisal Can Help Reduce It

Mortgage insurance, often referred to as PMI (private mortgage insurance), is a monthly premium added to your mortgage payment designed to protect the lender in case of loan default.

Specifically, this coverage kicks in if you've made a down payment of less than 20% of the purchase price.

But how does PMI work?

When does it apply?

And how can you avoid or remove it?

We at Measured Home Services, your trusted real estate appraiser in Tulsa, will explore these questions and reveal how an updated home appraisal can potentially help you to shed this extra monthly cost.

What is PMI and Why Do You Need It?

PMI is an insurance policy that provides lenders with a safety net in the event of a borrower defaulting on their mortgage. By mitigating the risks for lenders, it allows them to offer mortgages to borrowers who might not otherwise qualify due to a lack of financial means for a larger down payment.

Each month, the PMI premium is added to your mortgage payment, along with the principal and interest. If a borrower defaults, this insurance will compensate the lender for a portion of the loan balance. Despite its benefit to the lender, PMI represents an additional monthly cost for borrowers that doesn't contribute to the principal of their loan.

The Path to Removing PMI

Now that we understand what PMI is, let's turn our attention to a question many homeowners ask: "How can I remove PMI from my mortgage payments?"

Often, borrowers can request the removal of PMI once they've reached a certain level of equity in their home. This level typically corresponds to a loan-to-value (LTV) ratio of 78% or 80%, depending on the type of loan. In other words, once you've paid down your loan sufficiently such that you own 22% or 20% of your home outright, you may qualify to cancel PMI.

However, the terms and conditions for PMI removal can vary depending on the loan program, lender, and servicer. Therefore, it's crucial to check with your lender for the specific details related to your mortgage.

How a Real Estate Appraiser in Tulsa Can Help

This is where we at Measured Home Services come in. As a premier real estate appraiser in Tulsa, we provide professional home appraisals to accurately determine your property's current market value. An up-to-date appraisal can prove essential in reaching that crucial 20% or 22% equity threshold more quickly, particularly in a rising real estate market.

By having your home reappraised, you might find that it has appreciated in value since your purchase. This appreciation can increase your home's equity and decrease the LTV ratio, potentially making you eligible for PMI removal sooner than expected.

Wrapping Up

PMI provides opportunities for homebuyers who might not be able to afford a large down payment. However, it's also an additional expense that many homeowners understandably want to shed as soon as they can.

An accurate, up-to-date home appraisal is one tool you can use to potentially reduce or eliminate the need for PMI payments more quickly. As your reliable real estate appraiser in Tulsa, Measured Home Services is here to provide professional, accurate appraisals to help you understand your home's worth and make informed real estate decisions.

Get in touch with us today and become one step closer to reducing your monthly mortgage payments.