Beginning in 1999, lending institutions have been legally obligated to cancel a borrower's Private Mortgage Insurance (PMI) when his mortgage balance (for a loan closed past July of '99) goes down below seventy-eight percent of the purchase price, but not at the time the loan's equity climbs to twenty-two percent or more. (There are exceptions -like some loans considered 'high risk'.) But if your equity gets to 20% (no matter what the original price was), you are able to cancel PMI (for a mortgage closed after July 1999).
Familiarize yourself with your monthly statements to keep your eye on principal payments. Find out the purchase prices of other homes in your immediate area. Unfortunately, if you have a recent mortgage - five years or fewer, you probably haven't begun to pay much of the principal: you are paying mostly interest.
When you think you have achieved at least 20 percent equity, you can start the process of getting PMI out of your budget. Contact your lender to ask for cancellation of your PMI. Then you will be required to verify that you are eligible to cancel. The best proof there is can be found in a state certified appraisal on form URAR-1004 (Uniform Residential Appraisal Report), which is required by most lending institutions before canceling PMI.
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