Understanding PMI and How to Remove It
Private mortgage insurance is the fee that makes low-down-payment conventional loans possible — and the one most homeowners are happiest to say goodbye to. The good news: unlike FHA's insurance, PMI is designed to be removed. Here is how it works and how to get rid of it as early as possible.
What PMI is and what it costs
PMI protects the lender, not you, when your down payment is under 20 percent on a conventional loan. It typically costs 0.3 to 1.5 percent of the loan amount per year, folded into your monthly payment — and it is priced by your credit score, so stronger credit means cheaper PMI.
Remember why it exists before resenting it: PMI is the fee that lets you buy years earlier instead of waiting to save 20 percent while home prices keep climbing.
PMI is the price of buying sooner. The goal is not to avoid it — it is to shed it quickly.
The automatic and on-request removal rules
Federal law gives you two guarantees. At 80 percent loan-to-value based on your original purchase price schedule, you can request cancellation in writing, provided your payments are current. At 78 percent, the lender must cancel PMI automatically.
But waiting for the amortization schedule is the slow lane. The fast lane is appreciation.
Request at 80 percent LTV, automatic at 78. But you may not have to wait for either.
Use appreciation to exit early
If your home's value has risen — and DFW homes have a habit of doing that — your real equity may already be past 20 percent even if your loan balance says otherwise. Most servicers will remove PMI based on a new appraisal once you have roughly 25 percent equity, or 20 percent with some seasoning on the loan.
A few hundred dollars for an appraisal that eliminates a monthly fee for years is one of the best trades in homeownership. And if your rate is also above market, a refinance can remove PMI and reprice the loan in one move.
Rising values can end PMI years early. Check your home's value annually — the appraisal often pays for itself in months.
We track home values for our clients and flag the moment a PMI removal or refinance genuinely pencils. Wondering if you are there yet? Call Steve Barton at 214.673.1319 or visit corecommunitymortgage.com and we will check together.
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