Do you have a mortgage? Did you put less than a 20% down payment on your home to get that mortgage?
That’s ok. I did too.
But I have bad news, you and I pay extra money each month called private mortgage insurance (PMI).
It adds several hundred dollars to your mortgage each month.
That’s several hundred dollars that could go toward paying down your mortgage but doesn’t.
But there’s hope, you can get rid of PMI.
Here’s how I did it.
What is PMI?
Before we can get into how to remove PMI, you need to know what PMI is.
PMI is a special type of insurance that protects your lender in the event you don’t pay your mortgage.
You only get PMI if you put less than 20% down when you buy your home.
So if you put down $5,000 on a $100,000 home, you have to buy PMI.
But if you put down $20,000, you don’t need PMI.
You are a bigger risk to your lender when you put less than 20% down.
Now that you know what PMI is, let’s discuss getting rid of it.
How Do You Get Rid of PMI?
There are several different ways to get rid of PMI.
And several depend on your loan type.
But there 3 main ways to do it.
The first way and simplest way is to pay down your mortgage to 78%.
So if you purchased your home for $100,000 and put down $5,000, you would need to cut a check for $17,000 to get your loan balance to $78,000.
Based on the title of my article, this isn’t the way I was talking about.
The second way is through appreciation.
This way is completely out of your control. You’re just hoping and praying the value of your home goes up enough that your loan balance hits 78%.
On your $100,000 with $5,000 down, your house would need to appreciate almost 22%. It would need to be valued at $121,795.
The second way does fit the description of my title but it’s not they way I was describing.
It’s completely out of your control.
But there’s a third method.
So How Do You Get Rid of PMI Without Spending Your Own Money?
What’s behind door number three?
It’s the best option and the one that I used.
If you complete structural improvements to your home, you can have it re-appraised by your lender.
If your new home value exceeds the threshold you need, you get rid of PMI.
In our example, your new appraised value would need to exceed $121,795.
What are “structural” improvements?
These are defined by your lender but by lender defined them as improvements that aren’t regular maintenance items.
For example, replacing your HVAC or water heater or repairing your floors won’t work.
Replacing your counter tops with granite won’t work either and I was surprised by that.
Expanding your deck or finishing your basement will work.
To get rid of PMI, I expanded my deck and finished a room in the basement to turn it into a bedroom.
I turned my house into a 5 bedroom house instead of a 4 bedroom house.
It added a ton of value.
But how did I do it without spending my own money?
That’s the money question isn’t it?
I used my Home Equity Line of Credit (HELOC). You can click on the link to get a better understanding of what that is.
If a HELOC doesn’t work for you, there are other home equity loan options that I discuss in that link.
I was already paying $100 per month on my HELOC. That was the minimum payment.
I spent $2,000 finishing the basement room myself and because it was only $2,000, my $100 monthly payment didn’t go up.
And I save $130 per month not paying PMI.
Sounds like a good deal to me.
Getting rid of PMI is a great feeling and it saves you a bunch of money.
Not paying $130 per month makes me a lot happier.
Especially when that $130 went towards nothing I wanted or needed.
So start looking at your house to find ways you can increase its value.
I know there is a way to do it.
Can you think of other ways to increase your home value?
If so, let us know in the comments below.
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