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Cancelling PMI when Home Value Increases

Steve, who mentioned the now-unavailable Citi Home Rebate Mastercard I blogged about yesterday, also told me about his own experience with trying to get the PMI (private mortgage insurance) on his co-op mortgage canceled. When you put down less than 20% on the value of the home and thus have to get one or more mortgages to cover 80%+, lenders typically require you to also purchase private mortgage insurance (PMI). The Homeowner’s Protection Act of 1998 (effective July 1999) made the process automatic whenever you reach 22% equity based on the original assessed property value (you can request it at 20%) but what happens if your property appreciates significantly and you now owe less than 80% based on the current appraised value of the home?

You must request that the PMI be canceled and usually there’s some involved process. Here’s where Steve’s experience with Citi (I imagine this process is pretty standard across all lenders) will prove invaluable.

Recently, I decided to explore getting a reduction of my PMI on my mortgage. I live in Manhattan and have owned a Co-op (or shares in a Co-op to be more precise) for the past 3 years. Even though Manhattan is considered to be an expensive city, I consider myself to be frugal and don’t want to be giving away money where it is unnecessary to do so. Although it seemed that I may have purchased at the height of the market 3 years ago, the appeal of the beautiful 14 foot ceilings and 10% down requirement (typically 20-25% down is required here) proved to make the purchase an easy decision and in retrospect a good one financially. Based on the approximate 77% appreciation of my property in 3 years (based on sales of similar sales, and I hope the bottom doesn’t fall out), I got to wondering why I was still paying PMI, which is typically required for a Loan to Value ratio of 80% or greater. So, I decided to contact Citimortgage and see if there was anything I could do about it.

The process thus far has been quite easy, with some out of pocket expense. However, the risk of the expense was minimal compared to the annual savings I might see over the next 3-5 years for not paying PMI. I contacted the friendly folks at CitiMortgage and the Reps put me in touch with the PMI Department. The PMI Department informed me that I would need to send my request in writing, along with a check for $295 (non-refundable and possibly lower depending on where you live) to pay for a proper appraisal required by the PMI Insurer. They mailed me quite a bit of information, including some documents that seemed to indicate they would not perform a re-evaluation of PMI based on property appreciation. However, upon further discussion, they will in fact consider appreciation as part of
their decision, but other lenders may differ in their practices.

After cashing my check, they had an appraiser contact me and conduct what was, by Manhattan standards, a very extensive appraisal. My experience for co-ops here is that the Appraiser will take about 5 minutes to look around and ask you for what price you think you’d sell the property and base the appraisal on that. However, in this case, they were very thorough, including taking space measurements, requesting information on the number of shares that I own in the co-op, and informing me that they will be contacting the Co-Op’s Managing Agent to get information on recent sales. I am hoping that all of the combined factors will lead to a favorable decision, and I will keep you apprised of CitiMortgage’s decision.

Your faithful reader,

Steve

So getting the PMI canceled because your home appreciated comes with some expense can share some insight about general industry practices) but seems like a pretty straightforward process where if the appraiser’s appraisal shows you’re now under 80% loan-to-value then you should be all set. Hopefully everything happens as smoothly as Steve describes and he can get that expense knocked off the books.

If you are requesting that PMI be canceled because you’ve reached a LTV of 80% (it’s automatic once you read 78%), The Homeowner’s Protection Act of 1998 prohibits a lender from charging you for removal of PMI (even if they hide it behind some service, legally they are obligated to remove it without any other service required). In this particular case, the LTV is still greater than 80% and Steve is looking to get the ‘V’ portion of the calculation made larger so I can understand the appraisal fee (sort of, but it’s obvious they want to collect a little extra).

Thank you for sharing your experience Steve!


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