For loans closed after July 1999, lending institutions are obligated (by federal law) to automatically cancel Private Mortgage Insurance (PMI) when the loan balance gets below 78 percent of the purchase price � but not at the point the borrower earns 22 percent equity. (Certain "higher risk" mortgage loans are excluded.) However, you can actually cancel PMI yourself (for loans made past July 1999) when your equity reaches 20 percent, no matter the original purchase price.
Analyze your mortgage statements often. You'll want to stay aware of the prices of the houses that sell in your neighborhood. Unfortunately, if yours is a recent mortgage - five years or fewer, you probably haven't begun to pay very much of the principal: you have been paying mostly interest.
You can start the process of canceling PMI at the time you calculate that your equity reaches 20%. You will need to contact your mortgage lender to alert them that you wish to cancel PMI payments. Lending institutions request proof of eligibility at this point. The best proof there is can be found in a state certified appraisal on form URAR-1004 (Uniform Residential Appraisal Report), required by most lenders before canceling PMI.
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