How to Remove PMI in Minnesota (and What It Actually Is)
What PMI Actually Is — and How to Get Rid of It
You're paying for insurance every month that protects your lender, not you.
That's PMI. If you bought with less than 20% down — which most first-time buyers and house hackers do — there's a good chance it's baked into your payment right now. A lot of people never look at it again. That's money left on the table, because in most cases you have a legal right to make it go away.
What PMI is
PMI — otherwise known as private mortgage insurance — is insurance that protects the lender if you stop making payments. Lenders generally require it when your down payment is less than 20% of the home's value. The premium gets added to your monthly mortgage payment.
It's not a scam. PMI is the trade-off that lets you buy with 3.5% or 5% down instead of waiting years to save 20%. But it's also not meant to last forever, and federal law backs you up on that.
The law that's on your side
The Homeowners Protection Act gives you specific rights to cancel PMI as you build equity. Here's how it works, in order.
You can request cancellation at 80%. Once your loan balance is scheduled to reach — or actually reaches — 80% of the home's original value, you have the right to submit a written request to cancel PMI. "Original value" generally means the lower of your purchase price or the appraised value at the time you bought.
It must automatically terminate at 78%. Even if you do nothing, your servicer is legally required to automatically terminate PMI once your principal balance is scheduled to hit 78% of the original value — as long as you're current on payments.
There's a backstop at the halfway point. If for some reason you haven't hit those marks, PMI must also end once you reach the midpoint of your loan's term. On a 30-year loan, that's after 15 years.
Now, one important note: loan investors like Fannie Mae and Freddie Mac can set their own PMI guidelines, but those guidelines can't be less favorable to you than the law above.
The exact steps to remove it
This is the part where I'll be specific, because vague advice doesn't help you.
Call your mortgage servicer and tell them you want to remove PMI. Ask who handles cancellation requests. You'll want your loan number, your original purchase price, and a current statement showing your balance.
To cancel, you generally need to be current on the loan and have a good payment history. The servicer may require evidence that your home hasn't dropped in value — usually an appraisal or a broker price opinion. As a real estate agent, I can sometimes provide a broker price opinion, otherwise known as a BPO, which can be cheaper than a full appraisal. Ask your servicer whether they'll accept one.
If you've paid down extra principal, or your home has appreciated, you may hit that 80% mark sooner than your original schedule shows. That's worth checking, because nobody at the servicer is going to call to tell you.
One catch for FHA buyers
If you used an FHA loan, you don't have PMI — you have MIP, the mortgage insurance premium, and the rules are different. With FHA, if you put down less than 10%, MIP stays for the life of the loan. If you put down 10% or more, it drops off after 11 years. The common way out of FHA MIP is to refinance into a conventional loan once you have enough equity — but you have to weigh that against today's rates before you pull the trigger.
At the end of the day, PMI is a tool that got you in the door. Once you've built the equity, there's usually no reason to keep paying it. The steps are straightforward — most people just never take them.
DM me if you want help figuring out where your loan stands and whether you're close to getting PMI off your payment.