If you are thinking about taking out a mortgage with mortgage insurance, or you currently pay mortgage insurance, the following information might be useful.
The Homeowners Protection Act of 1998 covers the rules of cancellation of mortgage insurance for primary residence, single family homes purchased on or after July 29, 1999.
The HPA covers both borrower requested and lender required cancellation. The following is an overview of the basic rules.
Cancellation Based On Original Home Value
Borrower requested cancellation:
The customer must request in writing to the lender for cancellation of the mortgage insurance policy. This can be done once the loan amount reaches 80% of the value of the home (value at the time the mortgage was taken out) , or 80% based on the original loan amortization schedule. In order for the cancellation to be considered, the following must apply:
- The mortgage must be in good standing with a satisfactory payment history
- The borrower must satisfy any lender requirements that could negatively impact the homes value
- The borrower must not have any additional subordinate liens (2nd mortgage or home equity line of credit)
- The mortgage servicer will require an appraisal to make sure the value of the home has not fallen
- Owner properties only
- Some lenders may also require that mortgage insurance is paid for no less than 24 months.
- Cancellation decisions are ultimately determined by each individual lender and can change at any time.
Lender required cancellation:
Under HPA rules, the lender must automatically cancel the MI policy when
- The loan balance reaches 78% of the original value based only on the amortization schedule and regardless of the actual loan balance
- Additionally, the borrowers must have a satisfactory payment history
Cancellation Based on Current Home Value
Individual banks/lenders determine the criteria required to cancel mortgage insurance based on the current home value.
The HPA does not address mortgage insurance cancellation based on current value.
According to the seller/servicer guides for Fannie Mae and Freddie Mac, the minimum requirement for cancellation includes
- The loan must be seasoned for no less than 2 years
- The borrowers must have a satisfactory payment history
- The maximum loan-to-value is 75% if the loan has been seasoned less than 5 years
- The maximum loan-to-value is 80% if the loan has been seasoned for 5 years or more
- Cancellation must be requested in writing
- Acceptable proof of home value must be provided
Cancellation Based on Current Home Value – After significant Improvements to the Home
- Significant improvements must meet lenders criteria for considering improvements as “qualifying improvements”
- Qualifying improvements are, but not limited to: addition of a room, the completion of a bonus room or basement that provides additional square footage to be included in the gross living area of the home, or building of a detached garage.
- Appraisal or BPO requirement to verify current value and must specify the nature, extent and cost of the improvements made and the effect of those improvements on market value. Those improvements must conform to local zoning and building codes.
Additional requirements may need to be met depending on the individual mortgage lender.
QUESTIONS FOR US?
Click HERE to connect with us, or to have us contact you
Curious if you qualify? – Call or email us directly, or Pre-Qualify Here
Call us at (240) 670-5090 or email us at CJMT@mainstreethl.com
For additional information from the Consumer Financial Protection Bureaus (CFPB) on this matter, see the bulletin link below.
