Many people want to know what the best way to “get rid” of mortgage insurance — either Private Mortgage Insurance (often referred to as PMI) or FHA Mortgage Insurance (acts just like PMI, but payments are made to HUD, not a private mortgage insurance company).

If you want to avoid PMI altogether, you must put 20% down when you purchase the property. In the recent past, many times people would get a 2nd mortgage for that 20%, but many lenders have done away with “piggyback” loans — so more people are now buying homes and paying the PMI because they were not putting 20% down.

If you only put 5% down and are now wondering “at what point am I able to get rid of PMI” the answer is that when you reach a point where you think you have 20% equity in your property, you should contact your mortgage servicer. They will be able to tell you what their requirements are for “getting rid of PMI” and will usually send you a package of instructions that involve getting an appraisal and completing some forms.

Because the process is different between lenders, you need to speak with your current mortgage servicer to be sure. There is also a chance that they will drop the PMI automatically, but I rarely see that happen.

When dropping PMI, the factors that your lender will consider are the current value of your home and if you’ve made your mortgage payments on time. Be sure not to spend the money on ordering an appraisal to determine your property value until you have spoken with your lender about the process.

If you have an FHA loan — two things must happen in order to cancel mortgage insurance — the UFMIP account must be depleted completely (this takes 60 months from when you took out your loan) and you must have paid down the principal to 78% of your original loan balance. FHA monthly mortgage insurance does not take in to account any property appreciation that may have occured.

From time to time, I am asked “I have a second mortgage. Is it possible to streamline the 2nd mortgage?”

And the answer is “no”.

What this tells me though is that FHA has done a good job of marketing the FHA streamline program because people are starting to ask for it by name.

The FHA streamline refinance program was designed to allow eligible FHA borrowers to take advantage of lower interest rates when they are available without having to completely re-qualify for a new loan – ON THEIR FIRST LOAN ONLY.

When doing an FHA streamline refinance on your first mortgage, if you have a second mortgage, the second mortgage is not eligible for the FHA streamline refinance program. FHA doesn’t insure second mortgages, so your second mortgage is not FHA insured – thus, it is not eligible for the FHA streamline program.

When you participate in the FHA streamline refinance program and you have a second mortgage, the lender of your second mortgage must agree to subordinate the second mortgage – meaning they have to agree to remain in 2nd position while you refinance the first mortgage.

It is getting more difficult to get lenders who are holding second mortgages to allow people to refinance their first with the FHA streamline refinance program, but it is not impossible. Each situation is different – you cannot get an answer on your situation until you speak with the holder of your second mortgage.

Can you streamline your second mortgage?

No.

But you can still participate in the FHA Streamline program if you have a second mortgage…

Private mortgage insurance is making a comeback.

Until six or eight months ago, private mortgage insurance was out of favor as people eager to get into the roaring housing market took adjustable-rate mortgages or “piggyback” loans or some other exotic form of financing. But as the market has cooled and lenders have tightened their standards, many people who want homes, especially first-time home buyers and those with little money for down payments, are choosing traditional fixed-rate mortgages backed by private mortgage insurance, or PMI.

The insurance costs the borrower a monthly fee, typically a set percentage of the total mortgage loan. If the borrower can’t repay the loan, the insurance kicks in and the lender gets some of its money back. Because of the guarantee, lenders are more willing to write the mortgages.

Read the rest of this entry »