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

Designed to protect lenders if a borrower stops making payments on their loan, private mortgage insurance (PMI) is traditionally required for borrowers that make a down payment of less than 20 percent of the home’s purchase price on a conventional loan. 

 Following Fannie Mae guidelines, there are three ways to cancel PMI on a conventional loan: 

1) Automatic Termination Guidelines

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

 

2) Borrower-Initiated Cancellation (Based on Original Value)

When a borrower believes they have reached an 80 LTV based on their home’s original value, they may request a cancellation. A borrower can reach an 80 LTV via a lump sum or by paying down their mortgage.

 

Borrowers will also need to 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. 

 

This guideline applies to single-family primary residences and second homes. 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. 

 

3) 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 requirement is waived if there are significant functional improvements made 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. 

 

This guideline also applies to single-family primary residences and second homes. 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. 

 

New York Properties

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