How to Get Rid of PMI on Your Chicago Home

Private Mortgage Insurance (PMI) is a fee that gets added to your mortgage loan if the down payment is less than 20%. It’s essentially a type of insurance that protects the lender in a case where the borrower defaults on the loan, i.e., stops making payments. 

The amount of PMI varies depending on the credit score of the borrower and the loan type. Regardless of its amount, any extra fees will be a burden for homeowners, given all the costs of owning a home.

If you weren’t able to put 20% down during the closing and got a PMI as a result, you will find value in this blog, as we are going to cover how you can get rid of this extra fee. We are a home appraisal company working in Chicago and have extensive experience in the Chicago real estate market. We know the ins and outs of all the real estate transactions and hope our knowledge will be of use to you.

When Can PMI Be Removed?

The good news is that PMI isn’t a lifelong thing and is removable. There are two common ways the PMI is removed after you purchase the home:

Automatic Termination: Under the Home Owners Protection Act (HPA), PMI should be automatically cancelled once the borrower reaches 22% equity (difference between the loan balance and the home value) based on the original home value.

NOTE: The original home value isn’t the purchase price of the home, but the value of the appraisal that is conducted before closing.

Requested Removal: You can also request PMI removal from your lender when you reach 20% equity. Approval is subject to your lender’s policies.

So, to be able to remove the PMI, you must first reach at least the 20% equity mark.

How to Build Equity Faster?

You can follow these steps to build your equity faster to be able to remove your PMI as soon as possible:

Make Extra Mortgage Payments: At the beginning of your loan term, the major portion of your mortgage payment goes towards interest. This causes the equity-building process to be slower.

To expedite this, you can make extra payments towards your principal amount to reduce the loan balance faster.

Home Value Appreciation: Chicago’s market trends may naturally increase your home’s value. So keep an eye on the trends and consult an expert if needed. You will need an appraisal to prove your home’s value, though.

Home Improvements: This is probably the best way to get rid of your PMI. Major upgrades to your home will boost its value. You can make upgrades like a kitchen remodel, new lighting, roof replacement, etc., to improve your home’s value.

We say this is the best because you are not only making your living space better, but also improving its value.

Get An Appraisal To Prove Equity

Out of the three methods we mentioned above to build equity faster, two require a home appraisal. If you think your home value has gone up significantly due to the market trends or the improvements you have made, you need to get an appraisal to prove your claim.

When your appraisal comes, your equity will be based on the new appraisal amount. So, if your new appraisal is 20% higher than your old one, you instantly have 20% equity required to remove the PMI.

You will have to contact your lender to learn the exact process for this, as it may vary by lender. Sometimes, the lender orders an appraisal, and sometimes you get to choose an appraisal company.

If you get to choose one, make sure to choose a reputable company that understands the Chicago market and one that can accurately value your home. AnDel Appraisals can be a great choice for all your appraisal needs. We have been appraising homes in Chicago for over a decade and know the market very well. Give us a call if you need help with your appraisal.