For loans closed after July 1999, lending institutions are obligated (by federal law) to automatically cancel Private Mortgage Insurance (PMI) when the balance of the loan falls lower than 78 percent of your purchase amount � but not when the borrower achieves 22 percent equity. (Certain "higher risk" mortgage loans are not included.) However, you can actually cancel PMI yourself (for loans made after July 1999) when your equity gets to 20 percent, no matter the original purchase price.
Study your statements often. Find out the prices of other homes in your immediate area. If your mortgage is under five years old, chances are you haven't greatly reduced principal � it's been mostly interest.
You can begin the process of canceling PMI as soon as you're sure your equity has risen to 20%. You will need to contact your lender to alert them that you wish to cancel PMI. Lenders require documentation verifying your eligibility at this point. The best proof there is can be found in a state certified appraisal using form URAR-1004 (Uniform Residential Appraisal Report), which is required by most lenders before canceling PMI.
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