How to Get Out of PMI

It seems like a waste to spend money on private mortgage insurance (PMI) when you could use the amount to pay down your mortgage or ease up another area of your budget. The private mortgage insurance on my first home loan accounted for $60 of my monthly payment, money I felt was better spent elsewhere. I managed to ditch it and was glad I did. If you want to get out of PMI, get started today. Here's how to get out of PMI and save some money.

Instructions

Difficulty: Moderately Easy

1. Figure out the approximate net worth of your home and the amount you still owe (see most recent mortgage statement). Divide the amount you owe by the value of your home. If the amount is 0.80 or more, you have at least 20% equity in your home, which is what you want. (For example, if you owe $80,000 on a home worth $100,000, you get .80, meaning you have 20% equity).
2. Contact your mortgage company and find out the requirements to have your PMI removed. By law, the company must automatically drop your PMI if you have 22% equity, no other liens on the home and a good credit history. When I called Countrywide to have my PMI removed, I had to wait an extra few months until the two-year anniversary of my loan; which is typical. for many lenders.
3. Follow up with your lender, submitting required paperwork and scheduling a professional appraisal, if required. Start the paperwork a month before your two-year anniversary to ensure it is removed right away when all requirements are completed.
4. Use the extra cash each month to improve your house, pay down your mortgage more quickly, or otherwise improve your finances.

Tips & Warnings

• If your house has gone up in value a good deal since you bought it, you'll be able to get the PMI removed more easily as it will appraise well.
• Don't take out a second lien or home equity line of credit before you get PMI removed, as a second loan disqualify you.