If you make a down payment of less than 20% when you buy your home, the lender will most likely require you to pay for private mortgage insurance (PMI). PMI protects the lender if you default on your mortgage payments and your house sells at a foreclosure sale for less than you owe on the loan. The lender tacks the cost of the insurance on to your mortgage payment each month. You can usually cancel PMI—thereby reducing your monthly mortgage payments—once you have 20% equity in your home and if you meet specific requirements. Under federal law, the lender has to let you know at closing how long it will take for you to get to a loan-to-value (LTV) ratio of 80% (that is, 20% equity). Even if you don't ask the servicer to cancel your PMI, the lender must cancel it automatically when the LTV ratio is 78%.
If you have a Fannie Mae or Freddie Mac loan, one requirement for canceling PMI is that you must have an acceptable payment record. An "acceptable payment record" means no payment 30 days or more past due in the last 12 months and no payment 60 days or more past due in the previous 24 months. On December 9, 2020, Fannie Mae and Freddie Mac addressed borrower-requested PMI termination during the coronavirus crisis in Lender Letter 2020-02 and Bulletin 2020-46. If you're otherwise eligible to cancel PMI for your loan, a couple of late payments due to COVID-19 probably won't cause an issue if you received mortgage relief.
For Fannie Mae loans, when looking at whether you have an acceptable payment record, the loan servicer can't consider any payment that's 30 or more days past due in the last 12 months or 60 or more days past due over the previous 24 months that's attributable to a COVID-19 financial hardship and if the servicer provided you with:
But you have to be current on the mortgage loan when you request the PMI termination.
This temporary policy change is effective for borrower-initiated requests for termination initiated through Fannie Mae's servicing solutions system on or after March 1, 2021. For assistance before this date, contact loss email@example.com.
For Freddie Mac loans, if you ask to cancel the mortgage insurance after the loan has been brought current following the conclusion of a COVID-19 related hardship, your payment history has to comply with all of the following requirements:
Both Fannie Mae and Freddie Mac's guidelines for canceling PMI apply if the request to cancel is based on the original or current home value.
Effective date: December 9, 2020