No. of Recommendations: 4
Hi SethLT,

Are you a closed deal yet? If not DROP EVERYTHING and call your loan broker to get your financing done on an 80-15 combo loan (see previous posts.) You'll pay less o/o pocket monthly, have more tax deductions (even more IN pocket monthly at year's end), and be able to more quickly pay down the amount above the 80% 1st mortgage... but not in the desperation of avoiding PMI because it won't be there!!!

NOW... to directly answer your question;

1) Method #1, natural paying down of principal...
You can have your lender stop your PMI payments when your PRINCIPAL is paid down to 78% or lower (that's right, not 80%... the lenders get additional wiggle-room risk-reduction in the fine print.) As you probably realize, in the beginning of the loan VERY LITTLE ofyour monthly payments go to principal, so it's gonna be a while! You won't need an appraisal for this as it's simple bookkeeping to see there's now a 78% loan-to-value against the previous purchase price.

2) Method #2, appreciation increases equity...
By law (which I'm digging up chapter and verse currently for the legal types here... it's in code 12 USC 4901 as of July 1999, passed by the 105th Congress) ONLY AFTER 24 MONTHS the lenders are mandated to allow you to request them in writing to remove your PMI payments IF you have an appraisal done that shows that your outstanding loan amount is 78% or less of the new market value. They are NOT mandated to do so before 24 months (though I've seen MOST lenders choose to be good guys and comply, some have not.)

IN ADDITION, I've seen condition #1, above, get dragged out for several months of additional payments while the written request bounced to the right people in the right departments. If you're paying down the last part of an 80-15 combo, you don't have to ask anyone's permission.

Hope that's somewhat helpful. (Go get financed on the 80-15!)

Dave Donhoff
Home Finance USA
Lic. Mortgage Broker
Print the post  


Useful Resources
Our Home Center has all you need to make buying and owning a home a great experience. Get or refinance a mortgage and much more!
Buying/Selling a Home FAQ

Mortgage Professor
Offsite resource for mortgage questions.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.