Since 1999, lending institutions have been legally required to cancel a borrower's Private Mortgage Insurance (PMI) when his mortgage balance (for a loan closed after July of '99) goes down below seventy-eight percent of the price of purchase, but not at the time the borrower's equity climbs to more than twenty-two percent. (This legal obligation does not cover a number of higher risk mortgages.) The good news is that you can request cancelation of your PMI yourself (for your mortgage that closed past July '99), no matter the original purchase price, when the equity gets to twenty percent.
Keep a running total of money going toward the principal. You'll want to be aware of the prices of the houses that sell in your neighborhood. Unfortunately, if yours is a new loan - five years or fewer, you probably haven't had a chance to pay very much of the principal: you have been paying mostly interest.
Once you think you've reached 20 percent equity, you can begin the process of canceling your Private Mortgage Insurance. You will need to contact the lender to alert them that you want to cancel PMI payments. Your lender will ask for proof that your equity is at 20 percent or above. Most lenders require a state certified appraisal documented on the form: URAR-1004 (Uniform Residential Appraisal Report) to determine your equity and eligibility for canceling PMI.
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