How to Cancel Private Mortgage Insurance (PMI) on a Conventional Loan

How to Cancel Private Mortgage Insurance (PMI) on a Conventional Loan 

Private mortgage insurance (PMI) is typically required for borrowers that make a down payment of less than 20 percent of the home’s purchase price on a conventional loan. PMI was implemented as a form of protection for lenders if a borrower were to stop making payments on their loan. 

According to Fannie Mae guidelines, there are a handful of ways to cancel PMI on a conventional loan: 

Automatic Termination 

PMI is automatically terminated when a borrower reaches a 78 loan-to-value ratio (LTV), based on the original value of their home, given that the borrower is confirmed to be current on their mortgage by a servicer. Automatic termination applies for both single-family primary residences and second homes. 

Borrower-Initiated Cancellation- Based on Original Value 

Borrowers can request a cancellation of PMI when they believe they have reached an 80 LTV based on their home’s original value. The LTV can be reached by paying down their mortgage, or via a lump sum. 

It’s important for borrowers to recognize that they must provide evidence of value. Fannie Mae requires a servicer to verify that the current value isn’t less than the original value. Freddie Mac requires the servicer to warrant that the original value supports the LTV required to cancel PMI. 

To be approved for a borrower-initiated cancellation, borrowers must be current on their mortgage, and cannot have a 30-day late payment in the past 12 months, or a 60-day late payment in the past 24 months. This guideline applies to both single-family primary residences and second homes. 

Borrower-Initiated Cancellation- Based on Current Value

When a borrower is at a 75 LTV or less, they face 2 and 5 year seasoning requirements. At an 80 LTV, seasoning requirements are greater than 5 years. The seasoning requirements are waived if the borrower makes significant functional improvements to the property. A broker price opinion is ordered to determine if the improvements are significant enough to raise the value of the home, granting the borrower a 75/80 LTV. A servicer will validate both the current and original value of the property by using a valuation method accepted by Fannie Mae and Freddie Mac. 

To be approved for a borrower-initiated cancellation, borrowers must be current on their mortgage, and cannot have a 30-day late payment in the past 12 months, or a 60-day late payment in the past 24 months. This guideline applies to both single-family primary residences and second homes. 

Guidelines for New York Properties

New York follows a different set of PMI termination guidelines than those outlined above. In New York, PMI is solely based on the appraised value of a property, rather than the purchase price. The termination point is 75 LTV of the appraised value. 

Lenders will proceed with the better of the national rule of the New York rule, depending on whichever guideline terminates PMI earlier for the borrower.