Your Mortgage : Getting Rid of Private Mortgage Insurance : Home Loans: When a homeowner has a 20%, or greater, equity in the property, the lender may agree to drop the PMI payments.

Questions about mortgage insurance, VA loans and condominiums recently dropped out of the mailbag and onto the desk.

Two readers asked different questions about private mortgage insurance, or PMI. That’s the type of insurance that lenders usually require when the down payment on your home is less than 20% of the home’s purchase price.

The cost of PMI depends primarily on the size of your mortgage, but typically ranges from $25 to $50 a month. If you default on your loan, the insurer will reimburse the lender for at least part of its losses.

PMI payments are usually made into an impound account and factored into your monthly mortgage payment. But what many homeowners don’t realize is that these payments can often be eliminated after their equity stake in the property reaches 20% or more.

Don Nichols of Gardena says his in-laws bought a house two years ago and that they now have more than a 20% equity stake in their property. His question: “Can they now drop the PMI without refinancing?”

The answer is probably yes, although cancellation procedures vary from one lender to the next.

A few lenders will cancel the PMI simply after you make a phone call or write a letter and the lender verifies that you have at least a 20% equity stake in the property. Others will cancel it if you furnish a letter from one or two realtors estimating the current value of your home.

However, most will insist that you obtain an appraisal of your property’s current value, and that you pay the appraiser’s $150 to $300 fee yourself. The lender might also specify which appraiser to use.

If the lender balks at your request to cancel PMI, ask your banker whether your home loan has been sold to the Federal National Mortgage Assn. or the Federal Home Loan Mortgage Corp. These two government-chartered agencies purchase about 2 million loans a year from lending institutions, and both generally require lenders to cancel private mortgage insurance if certain conditions are met.

Unfortunately, not all borrowers can drop their mortgage insurance. That’s bad news for Robert Jones of Ontario, who asks if he can stop paying the monthly mortgage insurance on his FHA loan.

The insurance premium on loans insured by the Federal Housing Administration--an amount equal to 3.8% of the total loan amount--usually can’t be dropped because most lenders who make the loans eventually sell them to the Government National Mortgage Assn.

The GNMA, nicknamed “Ginnie Mae,” pools the government-backed FHA loans it buys and then sells shares in the pools to investors.

Since mortgages in the pools are backed by the federal government, so are the Ginnie Mae securities. That makes them virtually as safe as U.S. Treasury bonds, a factor that attracts safety-conscious investors.

If homeowners were allowed to drop their FHA insurance premiums, Ginnie Maes would no longer have government backing and many investors wouldn’t buy them. As a result, rates on the securities would have to be raised or less money would flow into the nation’s banking system--either of which would tend to push mortgage rates higher.

Although you probably can’t drop your monthly FHA insurance premium, take heart: It’s essentially a “user fee” for a loan that enabled you to buy a home that you probably couldn’t have afforded otherwise.

Several veterans of the armed services have asked whether they’re eligible for a VA loan if they have used the program before. The answer is a qualified yes.

According to Bruce Norman, executive vice president of First Mortgage Corp. in Diamond Bar, there are two basic requirements that the vet must meet to reuse the program: The previous VA loan must be paid in full, and the borrower can no longer own the property that the loan financed.

These two requirements might make it seem as if a veteran who currently lives in a home financed with a VA loan would have to sell the property, pay off the loan and rent some place for weeks or even months while he waited for his new VA loan to come through. However, that’s not the case.

Instead, Norman said, the lender who is financing the new home can issue loan approval for the new VA loan contingent on proof that the old loan has been paid in full.

Most of the paper work is processed while the vet’s first home is in escrow: After the deal closes, the new lender presents proof to the VA that the old loan was paid in full. The new lender then funds the new VA loan and gets a new VA guarantee.

Since it takes a couple of days to provide all this documentation, the vet usually works out an agreement to rent his old home from the new owners for a few days. When the new lender has completed all the paper work, the vet can move into his new house.

Nancy Greenberg, who lives in Florida and recently read this column in the Miami Herald, says she and her husband are thinking of buying the condominium that they currently rent. But, she adds, “my son says we won’t be able to write off all our mortgage interest payments. Is he right?”

It sounds like your son may be confused. You can generally write off all your mortgage-interest payments on a condo loan, the same way you’d write them off if you purchased a single-family house. Payments for property taxes are also fully deductible.

What your son may be talking about are the dues that your condo development’s homeowners association will collect. The Internal Revenue Service usually won’t let you deduct association dues unless your condo is considered rental property.

If you want to play it safe, contact an accountant or other qualified professional for help.