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Good morning,

My mortgage requires PMI and it's a bit costly. I called Chase to find out when I will be eligible for the PMI to be removed. The woman on the phone couldn't give me an answer but told me they would send me a letter.

Saturday, I received the letter from Chase explaining they couldn't or wouldn't remove my PMI and that I had to pay it until the loan expired (2034!). It also said that I signed a form okaying that. I had a lawyer at my closing and I definitley would have protested that if it were true.
They also said the reason being is because my loan is FHA.

Has anyone dealt with this or are there any ways around it?

Thanks.
kelly
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It seems like what they told you is true. From the FTC website:
<http://www.ftc.gov/bcp/conline/pubs/alerts/pmialrt.htm>
========================================
The Homeowners Protection Act of 1998 - which became effective in 1999 -
establishes rules for automatic termination and borrower cancellation of
PMI on home mortgages. These protections apply to certain home mortgages
signed on or after July 29, 1999 for the purchase, initial construction,
or refinance of a single-family home. These protections do not apply to
government-insured FHA or VA loans or to loans with lender-paid PMI.
========================================
are there any ways around it?

Yes, you can refinance. If your equity is high enough (20% of the original loan value), you might also just try writing them a polite letter asking them to wave PMI (and politely pointing out that if they won't, you'll refinance with another lender).
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They also said the reason being is because my loan is FHA. Has anyone dealt with this or are there any ways around it?

If your FHA loan was originated before January 2001, PMI (it's called MMI [monthly mortgage insurance] when it's an FHA loan) is for life. The way around it is to refinance the loan.

http://www.fhainfo.com/fhamortgageins.htm

If your FHA loan was originated after January 2001, you can get MMI removed just as you can get conventional PMI removed.

http://www.realestatejournal.com/columnists/housetalk/20031031-barta.html



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You might also try calling the lender again. Sometimes you will get a different answer depending on who you talk to.

As I recall, sometimes mortgage companies look at home appreciation differently than actually paying down the loan. If this is the case then you may be able to get a separate home equity loan through a different lender to pay the original loan down to 80% of the original appraisal.

If you got you loan through a mortgage broker, you might also call them to see if they can help. Likewise if your real estate agent referred you to that lender they should know what is going on so that they do refer anyone else there.

Was there s specific reason that you went with PMI instead of some version of an 80/20 combo loan? It is my understanding that very few people still use PMI.

Greg
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Saturday, I received the letter from Chase explaining they couldn't or wouldn't remove my PMI and that I had to pay it until the loan expired (2034!). It also said that I signed a form okaying that. I had a lawyer at my closing and I definitley would have protested that if it were true.
They also said the reason being is because my loan is FHA.


As already mentioned, FHA loans have a "special" form of PMI. Normally you can get rid of PMI once you get over 20% of equity (the specifics on doing so will depend on your lender and loan). Also, non-FHA loans originated recently (in the last...3 years or so, the experts on this board will know the answer off the top of their heads) have to have PMI removed automatically once the outstanding loan balance drops below 80% of the original sale price of the home. However, with even modest annual appreciation in your home price, you will hit 20% equity long before you the loan amount is amoritzed that low.

If possible, you could refinance your loan. Interest rates remain relatively low (although they are up about a quarter point from 3 weeks ago), and you have probably had some appreciation on your property (ours is up over 6.5% from just over a year ago. Yes, I'm refi-ing, for the second time since purchasing last June).

If you have less than 20% equity currently (which is probably the case), then you can either take on PMI with the new loan and plan to get rid of it when you reach over 20% equity, or try to get a "combination" loan. In this scenario, you would get a first mortgage for 80% of your home's value, then get a second mortgage for the remaining outstanding amount. I don't know how difficult this would be as a refi; it's normally done on the original purchase.

The second mortgage has an interest rate somewhat higher than the first, as it's subordinate to the first mortgage (in the even of foreclosure, the first mortgage gets paid first, then the second).

-synchronicity
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Was there s specific reason that you went with PMI instead of some version of an 80/20 combo loan? It is my understanding that very few people still use PMI.

I'm sorry, I'm new to all of this. I don't know what a 80/20 loan is.

I know that we didn't put x amount of dollars down, so we are required to pay PMI. It's something insane like 50 bucks a month!

I think we took on an FHA loan because of our income (which has since then almost doubled) and my credit (which has much improved).

I don't know much about re-financing, but I'm not sure how I feel about that. I don't want to have to go through the entire process again (lawyers, closing cost, etc). Also, I'm afraid that our debt to income ratio would kill us (that has also went through the roof since we bought the condo).

Thanks everyone for their thoughts!
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80/20 combo loan

"combo" = combination, as in two loans. An 80/20 combo loan would be two loans, the first mortgage for 80% of the purchase price (if buying) or 80% of the appraised value (if refinancing), and a second loan (typically a home equity loan or a home equity line of credit) for the remaining 20%.

The idea is that by having the first mortgage be no more than 80% of the value of your house, you won't be paying PMI. If you make itemized deductions on your federal tax returns, the interest on both loans are potentially deductible.

I don't want to have to go through the entire process again (lawyers, closing cost, etc). Also, I'm afraid that our debt to income ratio would kill us (that has also went through the roof since we bought the condo).

I found refinancing a lot easier than the original purchase, and with far less stress. Yes, there is another credit check, appraisal, title search and title insurance, and I found the appraisal the worst part since some parts of my unit needed work (which I did a year after refinancing). The appraiser told me that he is usually more lenient on a refinance than a purchase because, after having lived there for some time, he figures that I am aware of the shortcomings and am willing to live with them, whereas a new purchaser may be unaware of major shortcomings. At the signing, I was alone for a good chunk of the time while I read through the papers and put post-it notes on the pages where I had questions until the closing agent poked her head back in the room. And since there was no pressure to perform by a specific date (since I wasn't tied to a purchase contingent on financing), a delay of a day or two didn't make that much difference.

We typically don't use lawyers for home purchases where I live, so I can't tell you whether or not a lawyer would be typical for a refinance. On a refinance, you aren't dealing with transferring ownership of property between parties and clauses to handle possible problems resulting from that. In addition, on a refinance there is a 3-day right of recension so if you get buyer's remorse within that time, you can exercise your right of recension.

The debt to credit limit ratio for revolving credit could be an issue. You may find a mortgage broker better to navigate your refinancing options than a loan officer at a bank. The mortgage brokers who frequent this board might be able to give you an idea with a few more specifics (state where you live, the credit scores from the three major CRAs, your revolving credit used to revolving credit limit ratio).
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