Once you’ve built 20% equity in your home, you may ask your loan servicer to terminate your PMI early. You may also wait for automatic termination, make extra monthly payments to build your equity faster, or refinance your mortgage.
Below, I’ll explain how to remove PMI on a Texas home loan in five ways and share tips to make the process as seamless as possible.
Let’s get started!
Private Mortgage Insurance (PMI) is a type of mortgage insurance that’s often required on conventional loans when a homebuyer puts down less than 20% of the home’s purchase price. If you stop making mortgage payments, PMI protects your lender by covering part of the loss.
While PMI makes it easier to purchase a home with a smaller down payment, it’s an additional cost that increases your monthly loan payment.
For homeowners, removing PMI means saving money every month and reducing overall housing costs.
It helps you get a lower monthly mortgage payment and improve your debt-to-income ratio. Plus, it frees up cash every month for other expenses.
The good news is that PMI can be canceled. The guidelines below apply to eligible conventional loans for single-family primary residences that closed on or after July 29, 1999 in the U.S.
Under the Homeowners Protection Act of 1998 (PMI Cancellation Act), your loan servicer should automatically terminate your private mortgage insurance when:
Ask your loan servicer if you’re eligible to cancel PMI or request removal sooner based on your home’s current value to save more money.
Pro Tip: Stay current on your mortgage payments so your automatic PMI termination goes smoothly.
You have the right to request PMI termination in writing once your loan’s principal balance reaches 80% of the home’s original value, which means you have 20% equity.
Check the amortization schedule your lender provided at closing. It shows the exact date when your loan balance reaches 80% of the home’s original value. At that point, you may be eligible to request PMI removal.
To remove PMI sooner, you must meet the following requirements:
Build 20% home equity faster by making extra mortgage payments toward your principal.
A smart tactic is the biweekly payment strategy where you pay half of your monthly mortgage every 2 weeks instead of paying the full amount once a month.
Compared to normally making 24 half-payments every year, this strategy allows you to make 26 half-payments each year, which means one extra full mortgage payment annually.
It helps you pay off your mortgage more quickly and save thousands of dollars in interest over time. However, you can also pay one lump sum if you prefer to build your savings first.
Pro Tip: Ask your lender first whether they allow partial payments and apply the extra payments to the loan’s principal. Also, ensure these don’t lead to additional payment processing fees.
Refinancing may be a smart move if interest rates are lower than your current rate or your home’s value has increased enough to improve your loan options.
How to remove PMI on a Texas home loan through a refinance:
Upgrades that improve your home’s overall condition, like bathroom updates, kitchen remodels, or energy-efficient improvements, can raise the value of your property and help you reach 20% equity faster.
Property appreciation in your neighborhood can also increase your home’s value.
Consider requesting PMI termination if you believe your home is worth more now and you have enough equity. Just keep in mind that your loan servicer will likely require you to pay for an appraisal to verify your home’s current market value.
Whether you’re buying your first home or planning to refinance, take time to explore your loan options carefully and get expert guidance for a smoother application process.
Our experienced loan officers at Texas United Mortgage will help you determine the right fit for your financial profile and long-term goals.
Reach out to us now to compare your loan options!