How to Tell If You Qualify to Cancel Your PMI

When you think inflation has pushed your home value to the point at which you’ve got enough equity to cancel your monthly private mortgage insurance payments, what do you do next?

Thousands of homeowners in fast-appreciating markets across the country are confronting that question. They’ve heard that property values in their areas have jumped by 6% to 8% for a couple of years running, and they wonder: Do they have the 20% equity stake--thanks to inflation--that they need legally to get rid of the $40 to $100 premiums they’re paying every month?

They may indeed have the required amount of equity. But to qualify for cancellation, they’ll have to demonstrate to their lenders that their property is as valuable as they think it is. To do that, they’ve got to use one or more valuation methods that are available for canceling private mortgage insurance.

For starters, they can surf some of the online home value-estimator Web sites and get a rough sense of what their house is worth. But the online sites can be far off the mark depending upon the home’s location and the quality of the electronic property records database the Web site uses. More importantly, Web site-generated valuations are not accepted for PMI-cancellation purposes by the two largest owners of PMI-covered mortgages--Fannie Mae and Freddie Mac.

*

A second method homeowners can use is to contact a few local appraisers and ask whether they do “PMI-cancellation consultations.” According to the Appraisal Institute, the top national professional group representing licensed appraisers, many appraisers will do a “quick check” of their property databases for about $25. The consultations “will at least tell you whether you’re in the ballpark or anywhere near it,” says Don Kelly, vice president of the Appraisal Institute.

Some appraisers are also willing to credit the consultation fee toward any full-scale appraisal they perform for your lender in connection with a PMI-cancellation request.

A third, low-cost method that’s not widely known by consumers is a “broker price opinion,” or BPO. BPOs cost about $50 and generally can only be used in connection with PMI cancellations on loans owned by Freddie Mac. BPOs are valuation estimates prepared by a small group of firms that have contractual arrangements with Freddie Mac and can only be ordered by lenders who service mortgages for Freddie Mac.

*

Fannie Mae does not accept BPOs or anything short of a full appraisal. Lenders servicing loans for Freddie Mac are given the option of requiring a full appraisal or going with a BPO. Fannie and Freddie’s policies are particularly significant because between them, they own an estimated 75% to 80% of all PMI-covered mortgages.

If your lender says your loan is owned by Fannie, don’t even bother suggesting the lender order a $50 BPO. But if you find that Freddie owns your note, don’t be shy: Ask the lender to consider going with a BPO rather than a $300 to $400 appraisal. Because you’re going to pay for whichever method the lender chooses, it doesn’t hurt to tell the lender that you know BPOs are permissible on Freddie Mac-owned mortgages.

Fannie Mae’s senior vice president for credit, Robert J. Engelstad, says that the corporation continues to insist on full appraisals because “we feel we need the expertise of a [professional] appraiser” to establish market value. But Engelstad warns homeowners contemplating PMI cancellation to avoid a major problem he sees developing: Don’t hire and pay for a full appraisal before contacting the lender who services your loan.

Under Fannie Mae and Freddie Mac rules, the lender-servicer, not the homeowner, must choose the appraiser. If you pay $300 to $400 to an appraiser and then expect the lender to accept the valuation, you are rolling dice. Fannie Mae requires that all of its PMI-related appraisals be ordered by its servicers from their network of approved, licensed appraisers. It won’t accept substitutes.

Engelstad’s advice: If you want to cancel your PMI successfully, contact the lender to whom you send payments every month. Ask the lender to order either an appraisal or a BPO to establish market value. Don’t spend money on anything else but a low-cost “consultation” with a local appraiser unless you want to spend $600 to $800 on two appraisals--only one of which will get your PMI canceled.

To obtain a listing of licensed appraisers in your area, visit

https://www.appraisalinstitute.org.

*

Distributed by Washington Post Writers Group.