How to Avoid PMI With Refinance
PMI, or private mortgage insurance, is an additional charge you pay on your mortgage when you are not able to put down at least 20 percent of the home's value. When you pay for private mortgage insurance, you are stuck with it until you have paid down the loan to 80 percent of your home's value. However, if you refinance your loan, you may be able to avoid PMI, either based on the value of your home or your creditworthiness if you are close to the 80 percent threshold.
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Instructions
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Determine if you home's value has appreciated to the point that you owe less than 80 percent of the value. You can get a rough estimate of your home's value by comparing it to sales prices in your area, but to convince a lender you will usually have to have your home officially appraised. If you home's value has appreciated enough that you have at least 20 percent equity, you can refinance without paying PMI.
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Determine whether you are likely to get a lender to not charge you PMI when you refinance based on your creditworthiness. According to Bankrate, this is more likely for consumers who have a spotless record of mortgage payments, are close to having 80 percent equity, and have high credit scores and stable jobs.
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Call lenders to find one that holds onto the mortgages it originates rather than immediately reselling them. Lenders that hold on to mortgages are more likely to let you slide on PMI because they do not have to convince buyers that the loan will be repaid.
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Ask lenders who keep loans on their books if they will allow you to refinance without PMI. Lenders will not volunteer this opportunity, but may be willing to work with you.
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Tips & Warnings
The closer to the 80 percent threshold you are, the more likely you are to avoid PMI. Bankrate states that while an 82 percent loan might not have to pay PMI, and 85 percent loan would be much less likely to receive a free pass on PMI.
Lenders do not allow you to cancel PMI because of rapid appreciation of your home's value, because you still represent a higher credit risk, regardless of the appreciation rate of your home. Only after two to five years can you request that PMI be canceled based on your home's value.
