Removal of Mortgage Insurance Premiums (Part 2)
In my last blog I wrote about the slim possibility of getting a refund of “private mortgage insurance”. Mortgage insurance is required by lenders when a down payment is less than 20%. Usually those payments are non-refundable unless the lender agrees otherwise at the time the loan is made.
During the boom years the question I often received was not about a refund, but how to get PMI payments removed from future payments. Generally, when a borrower achieves the required amount of equity (20% to 25%), a request for removal can be made to the lender. However, there are no rules, formulas or set guidelines to determine how a refund can be achieved.
Whatever the requirements, there will be a number of steps involved in the process. And even though many borrowers received a document in their closing package stating how to get the mortgage insurance removed, it is not unusual for lenders to change the qualifications when the request is made those many years later. So you have to contact your lender to get the latest rules.
The most difficult hurdle these days is having the requisite amount of equity. With values that have fallen up to 50% in some areas of the Phoenix metropolitan area, only a small percentage of borrowers may be able to apply to have PMI removed.
In the event you believe you have the requisite amount of equity, the lender will require that you purchase an appraisal or supply other evidence of value as proof. If an appraisal is specified, not all will suffice, as the lender will have certain valuation requirements and a list of approved appraisers whose values they will accept. Again you must follow your lender’s procedures – contact the lender before doing anything.
One more thing about MIP I forget to mention in Part 1 of this article: it can’t be removed from condominium loans, no matter what the loan-to-value ratio is. According to Mortgagee Letter 00-46, this is apparently because premiums on condo loans are not paid up front. Go to http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/00-46ml.doc for more info.
Finally, is there a way to get a refund of Mortgage Insurance Premiums (MIP) paid in the past on FHA loans directly from the FHA? In almost all circumstances, no. On December 8, 2004, the FHA terminated their mortgage insurance premium refund program. However, if you refinance into another FHA loan, the refund from the old premium may be applied toward the up-front premium required for the new loan. See Mortgagee Letter 2005-03 at http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/05-3ml.doc.
However, if the time to collect hasn’t expired, you may be entitled to a refund from a loan originated prior to December 2004. To find out, enter your info at http://www.hud.gov/offices/hsg/comp/refunds/ index.cfm.
Finally, don’t know if your loan is FHA or not? Go to http://www.makinghomeaffordable.gov/ loan_lookup.htm to look up your loan.
– N. Mark Kramoltz © 2015