For loans closed after July 1999, lending institutions are obligated (by federal law) to automatically cancel Private Mortgage Insurance (PMI) when the loan balance goes below 78 percent of the purchase amount � but not when the loan reaches 22 percent equity. (The legal obligation does not cover certain higher risk mortgages.) However, you can actually cancel PMI yourself (for mortgage loans made past July 1999) when your equity gets to 20 percent, no matter the original price of purchase.
Familiarize yourself with your mortgage statements to keep a running total of principal payments. You'll want to stay aware of the prices of the homes that are selling around you. If your loan is fewer than five years old, it's likely you haven't paid down much principal � it's been mostly interest.
Once you determine you've reached 20 percent equity in your home, you can begin the process of getting PMI out of your budget. You will need to call the lender to let them know that you want to cancel PMI payments. Lending institutions require paperwork verifying your eligibility at this point. Most lenders ask for a state certified appraisal documented on the form: URAR-1004 (Uniform Residential Appraisal Report) to verify your home's equity and eligibility for canceling PMI.
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