Since 1999, lending institutions have been legally required to cancel a borrower's Private Mortgage Insurance (PMI) when his mortgage balance (for a loan made after July of '99) goes down below seventy-eight percent of the purchase price, but not when the loan's equity reaches twenty-two percent or more. (The legal obligation does not cover some higher risk mortgages.) The good news is that you can request cancelation of your PMI yourself (for a mortgage loan closing after July '99), no matter the original purchase price, after the equity gets to twenty percent.
Familiarize yourself with your mortgage statements to keep your eye on principal payments. You'll want to stay aware of the the purchase prices of the houses that sell around you. If your mortgage is fewer than five years old, it's likely you haven't made much progress with the principal � it's been mostly interest.
When you determine you've reached 20 percent equity in your home, you can start the process of getting PMI out of your budget. You will need to notify your mortgage lender that you wish to cancel PMI. The lending institution will request proof that your equity is high enough. A state certified appraisal documented on the appropriate form (URAR-1004 - Uniform Residential Appraisal Report) will document your equity amount � and most lending institutions request one before they'll cancel PMI.
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