How to ditch your PMI
If you bought a home, but didn't make a 20% down payment, your mortgage lender most likely required you to purchase PMI, or private mortgage insurance.
PMI helps protect the lender from losing its investment should you fail to make your mortgage payments. But once you achieve 20% equity, homeowners should ask lenders to waive the PMI requirement.
It could save you hundreds of dollars a year.
There are two ways you can reach 80% loan-to-equity value: Pay down your mortgage or wait until your home appreciates in value.
While many U.S. homes have actually lost value in the last couple of years, that's not true in every corner of the country.
So, for example, if you made a down payment of 10 percent on a home you bought for $180,000 and the house's value since has increased to $220,000, your equity is more than 20%.
But you may have an uphill battle proving it to the lender.
You most likely will have to pay for your own appraisal and will have to use comparable recent sales to demonstrate why you think your home's value has increased. Lenders are far more skeptical in today’s market thanks to the recent mortgage crisis.
If you simply pay off your mortgage until you reach 20% equity, you have a pretty easy case to present to the bank. And, they should let you drop your PMI requirement.
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