UPDATE: Eliminating mortgage insurance from a conventional loan

Video Transcript: 

Hey, I’m Evan Swanson of Swanson Home Loans, a division of Cherry Creek Mortgage Co. Inc. In today’s video, I’m going to talk to you about getting mortgage insurance eliminated from a conventional mortgage.

Back in February, I recorded a VIDEO which talks about the details of the Homeowner’s Protection Act, which is the federal statute which governs this topic. However, in my hand, I’m holding a Fannie Mae Mortgage letter, 2018-03, this document was released in mid-July and this changes the rules for Fannie Mae secured mortgages for consumers to get their mortgage insurance eliminated.

Now these particular rules only apply to Fannie Mae secured loans for now. If you have an FHA loan, a Jumbo mortgage, or loan which was secured by Freddie Mac, these rules may not apply. Also, in this video I’m only going talk about a primary residence one unit single family residence. I’m not going to talk about investment properties or two to four units. Those rules are slightly different.

The good news in this document is Fannie Mae is trying to make it easier for consumers to have their mortgage insurance eliminated. They talk about three different scenarios.

1) Getting the mortgage insurance eliminated based on the homes original value so a consumer has paid down the principal to have the mortgage insurance eliminated. Prior to these rules in order to have the mortgage insurance eliminated, a consumer would have to wait until the loan was scheduled to reach 80 percent of the original value of the home regardless of additional principal payments. What Fannie Mae is saying in this document is that they will now take into account the actual principal balance. So if you have made additional principal payments, then they will go off that without having to wait until the loan was originally scheduled to reach that point.

2) You want to take into account the home’s current value. In this scenario, the home value has gone up. It’s appreciated in value and you want the loan servicer to take that into account when determining the loan to value. Prior to these rules you’d have to pay for an appraisal or a broker price opinion and that particular document would create the value that the lender would use. What Fannie Mae is doing is they’re releasing an automated valuation system, it’s not going to be available until spring of 2019, but at that point, loan servicers will be able to cross check the current value of the property with the statistical model and if that valuation supports a loan to value of 80 percent or less, then the mortgage insurance would be eliminated assuming the loan is at least five years old.

If the loan is between two and five years old, Fannie Mae says the loan to value would have to be 75 percent. If the valuation in the statistical model does not support a proper value to have mortgage insurance eliminated, the consumer can still opt to get a broker price opinion or an appraisal to try to get the mortgage insurance eliminated.

3) If you’ve made improvements to your property that have increased the value, then you will have to provide the loan servicer with a detailed list of the improvements that have been made. Then they can go ahead and use that statistical model and if that doesn’t support a broker price opinion or an appraisal can substitute this. Basically the loan servicer can take into account additional improvements in value.

If you meet any of those guidelines, good news ahead. Starting January 1st of 2019, these new rules take effect and it should be easier for consumers to get mortgage insurance eliminated. If you have questions about your scenario, we’d love to be your resource for you. Thank you for the opportunity, we look forward to chatting with you soon.