When applying for a loan and considering “buying” points, you must consider all of the costs associated with your loan, PMI may be one of them.

PMI stands for Private Mortgage Insurance. It is mortgage insurance usually paid by the borrower to protect the lender. 

PMI is required by lenders when you mortgage loan-to-value (LTV) is higher than 80%, usually meaning that you are providing less than 20% of the purchase price of your home for a down payment. It protects them from the higher risk of default on loans with a higher LTV.

The cost of PMI varies and can be quoted to you based on your circumstances by your  lender.

Under Fannie Mae guidelines, borrowers can ask for PMI cancellation when the mortgage equals 80% of the current value if the loan is more than 5 years old, or 75% if the loan is 2 to 5 years old.

About getting rid of PMI- Here are the basic ways that you can cancel PMI insurance:

1. You can pay PMI until you owe less than 80%, 78% is usually required, of the original cost of your home and contact your mortgage company to have it removed.   - For example, you purchased a home when you graduated from college in 1996, you barely had the money for closing costs so you financed 100% of the purchase price of $100,000. Since then, you have paid your scheduled payment and your PMI, and you realize that sometime this year you will only owe $77,000 on your home. At that point you can contact your mortgage company and remind them that you are no longer required to pay PMI.

2.You can pay PMI until the midpoint on your loan    PMI is usually automatically canceled when the loan reaches its midpoint–15 years for a 30-year loan, 7.5 years for a 15-year loan.  

3. A faster way may be to have an appraisal done on your property showing that you owe less than 78% of the value.   Before you call an appraiser you will need to contact you lender and ask which appraisers in your area they would like for you to use.  Also, if you are unsure  that the value of your home has increased you can contact a local REALTOR and request a CMA (Comparative Market Analysis).  Most REALTORS provide CMAs free of charge, to give you a good estimate of the current market value of your property.  

 - For example,  you purchased your home 5 years ago just before the boom in the real estate market and you saw in your local newspaper that your neighbors home sold for $150,000, $50,000 more than you paid for yours!   So you call your local REALTOR to confirm your suspicion that the value of your home has increased significantly.   Contact your lender and have an appraisal done.  The appraisal comes back showing that your home is now worth $150,000!   The appraisal serves as evidence to the lender that you no longer need to pay PMI.  To complete the example: you have owned your home for only 5 years at this point, so you owe approximately $93,000. So,  $93,000(what you owe)/$150,000 (your homes value)= 62% LTV (loan to value).

4. Also, if you improve your home, by adding a room or finishing a basement.  You can get an appraisal, and ask your lender to recalculate your LTV, the same way that you would if the market caused the value of your home to increase.