If you are buying your new Santa Barbara home with less than 20% down payment, this is for you!
How long are you required to pay mortgage insurance?
The short answer is….. when the loan-to-value ratio (LTV) is 75% to 80% of the current value and if you have a Fannie Mae or Freddie Mac mortgage.
The long answer is…..
There are a number of exceptions (late mortgage payments, type of mortgage, etc.) to this “rule of thumb”. Also, investors/servicers may have an overlay to these rules such as paying a minimum of 2 years or the LTV percentage (75% vs. 80%). The only way to know for sure is to read your lender’s servicing agreement.
Nonetheless, for the most part, when your property value increases enough, you can get an appraisal and request that the mortgage insurance to be removed. The current appraised value needs to be high enough where the LTV is 75% or lower. There is a way to request the removal at 80% LTV but it is usually for those who have been paying their mortgage insurance for a minimum of 5 years. Once again, the 75% or 80% figures are determined by the lender’s servicing agreements.
Your property needs to increase by only 12.5%-20% before you can request the removal. When things start to recover and values “bounce off-of-the-bottom”, the up-swing in prices for homes in some of the better neighborhoods might not take all that long! We all could look back someday and be surprised.
Just a word of warning: Even though you might have 25% equity, the holder of the mortgage may require that you pay the insurance for a minimum of 2 years. FHA loans have a 5 year minimum payment requirement!!
Here are some links that I suggest that you study for the details. There are a number of rules that pertain to things such as principal pay-downs, subordinate financing (aka: HELOC’s), adjustable rate mortgages and other “one-off” scenarios.
http://www.privatemi.com/toolsresources/faqs.cfm
Homeowners Protection ACT of 1998
Happy House Hunting!!
Ken Doss
Community West Bank
Santa Barbara, CA
kdoss@communitywestbank.com
Great to know about the potential 2 year minimums and some of the cons of using FHA. Thanks Ken!
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ReplyDeleteYes FHA loans do have some drawbacks. Not only the mortgage insurance but the up-front fees. Nonetheless, for the most part, FHA does fill a huge void in the mortgage system. You only need 3.5% down payment to get into a house AND this can be 100% gift! Great way to into your first home.
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