Real Estate Investing Basics

The Easy Tip That Could Save You $1,000+/Year on Every Property You Own

2 Articles Written

When you purchased your primary residence (or any of your investment properties) with traditional financing, did you put less than 20% down? If so, read on. This could save you BIG money. If not, still read on, as this may help you in the future or help someone you know save BIG money.

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While there are many markets throughout the country that are still clawing their way out of the great recession, there are also quite a few markets that have rebounded quite well and are at or above their values before the recession. While the topic of another bubble is a whole different debate, if you're in a market that has recovered relatively well, then what you're about to read could save you hundreds, possibly even thousands of dollars per year!

My Story

We purchased our current home in 2012 when things were still pretty down in the area of California where we live. We purchased a 4 bedroom, 2 ½ bath single-family detached house in a PUD community. We got what we felt was a good deal at $225,000 with 5% down using an FHA loan. The house was a foreclosure, but didn't need much besides new flooring and paint. Fast forward just over 2 years, and the market has picked up quite well, and inventory is relatively low. A house behind us, which is an exact model match, recently sold for $315,000, and we just saw another one on the market for $319,000. Not bad for 2 years and relatively little work put into our house.

We could have refinanced, but we already have a very low interest rate of 3.875%, so paying closing costs of a few thousand dollars to save over $100 per month didn't seem like the best move. My wife, having been in the mortgage industry for many years, had another idea that may work for any homeowner, not just investors. What is the easy trick I speak of? It's as simple as calling your lender.

You see, when you purchase a house or investment property using conventional financing and you put less than 20% down, you typically have to pay Private Mortgage Insurance (PMI). This is an insurance policy that you pay for, but that doesn't protect you in any way. Your lender will require you to pay this insurance to protect them in the case that you default, as a concession for letting you put less than 20% down. The loan is riskier for them so they want to protect themselves. Typically, once you have paid down your mortgage to the point where you owe 80% or less of the original loan amount, the PMI drops off and your payment goes down. Be sure to check with your mortgage company if you have paid down your mortgage to this point, however, as banks aren't always on top of this.

Related: Hate Your House Payment? Here’s How One Man Used Creativity to Get Others to Pay His Mortgage – And the Result Changed His Life Forever

How We Eliminated Our PMI

Since we bought our house just over 2 years ago with only 5% down, while we do pay slightly over the minimum required monthly payment, we haven’t reduced the principal balance by 15% or anywhere close to it. So how can you save potentially thousands of dollars per year without paying down your balance? As I said earlier, call your lender and tell them you would like to inquire about removing your PMI! We bought our house for $225,000 with 5% down, which meant we had a loan balance of just over $213,000.

To get to 80% of our loan value, we would need to reduce our loan balance to approximately $180,000. Our loan balance is a little less now — around $205,000 — but we don’t want to pay $25,000 out of our pocket to get our loan balance to that level. Thankfully, the market is strong where we live, and the prices have gone up. If our house is now worth around $315,000, in order to have a loan to value of 80% or less, our loan balance would need to be $252,000 or less. Since we bought our house for $225,000, our loan balance is definitely less than $252,000.

Last month I called our bank and inquired about eliminating our PMI. They said I had a couple of options to achieve this and explained each quickly. The first option was to make a one-time payment of approximately $26,000 toward our principal balance to get it below the required LTV amount. Each lender is different. Some may require your LTV to be lower, such as 78% or 75%, to eliminate the PMI so check with your lender to see what their requirement is.

The Options

Our lender, Wells Fargo, was willing to eliminate the PMI, assuming the value had increased enough, since we have owned the property for at least two years. Another BPer said he called his lender, Chase, who told him he would need to own the property for five years before being able to eliminate the PMI. I recommend calling your lender, and if they state it's anything over two years, call back later to see what the next person says.

The second option presented to me was much more appealing. We paid $360 to have our home appraised by a company that Wells Fargo contracts with. As I stated, it will cost you a few hundred dollars, but it can be well worth it. If you don’t think your home or rental property has appreciated enough, then it’s your decision whether to spend the money on the appraisal or not. Previously, we were paying $119 per month in PMI. That has now been eliminated, meaning we are saving $1,428 per year for spending 15 minutes on the phone and paying $360 for an appraisal.

Related: Real Estate Financing: How to Choose Between Bankers, Mortgage Bankers & Brokers

So if you subtract the appraisal fee, then true, we’re only saving $1,068 this year, but I’ll still take it. Had we waited until we had paid down our mortgage the additional 15% to get to an 80% LTV, our PMI wouldn’t have been eliminated until June, 2020 — about 5 ½ years from now! At $1,428 per year, that means if we stay in our house that long, we will have saved $7,854! That’s just on our primary residence. We have put 25% down on all of our rental properties, so this won’t help us in those cases, but for investors who have purchased properties with 3%, 5%, or anything less than 20% down, you could do this with every property.


Obviously, this only works if the market where you own your primary residence and/or your rentals has gone up more than slightly. In areas like the Midwest, where cash flow is usually great but appreciation is typically relatively small, it may not work. For those of you who have invested in markets where appreciation is stronger, however, this could save you huge amounts of money each year.

We’re enjoying the extra cash every month and hope that this can help you achieve the levels of success you are looking for faster as well.

Have you eliminated PMI on any of your properties? How much money have you saved using this tip?

Leave a comment below, and let’s discuss!

Eric is a real estate investor with a full-time job who owns This Couple Buys Houses with his wife. They have been buy and hold investors since 2004 and have begun flipping properties as well, with...
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    Jeff Jenkins Real Estate Investor from Rosenberg , Texas
    Replied over 5 years ago
    Hey Eric, I like, but depending on one’s goals this may not be ideal. Something always to keep in mind, and I mean always, is return on equity. Return on equity is simply annual investment, or passive, income divided by net worth. The higher the percentage the better, unless you lost equity on a deal. I always consider the effect to my general return on equity before investing or shifting capital. In opinion, I would have probably used that $26K to purchase another rental property that generates enough cash flow to pay for my PMI. Now I have an asset paying for a liability, but even better a real estate asset that can appreciate and be paid off by its tenants. If PMI is for example, $200 a month, and it takes $26K to be rid of it, that means it would take over 10 years to recoup that capital, assuming that $200 a month is now being saved. Imagine the returns on that same $26K properly invested in real estate over ten years. But like I said it totally depends on one’s goals.
    Eric Black Rental Property Investor from Santa Maria, CA
    Replied over 5 years ago
    Hi Jeff, I’m sorry for any confusion however as others have stated, I did not take the $26,000 option. I agree with you, if that was our only option I would have used it to buy another property. Instead, we paid $360.00 for an appraisal to eliminate the PMI. Hope this clarifies any misunderstanding. Eric
    Max T. Investor from Philadelphia, Pennsylvania
    Replied over 5 years ago
    The bulk of this article was about how he DIDN”T pay $26k to eliminate his PMI, but instead paid a few hundred for an appraisal. His house had appreciated enough so that he owed less than 80% of the home’s new value, therefore, no need to continue paying PMI. This is the best way to eliminate PMI, however, it doesn’t work that way anymore. Any FHA loans that started with less than 20% down, post 2013 (I could be off by a year) now require a full refinance to be rid of PMI. So this strategy only works for loans originated prior to 2013.
    Eric Black Rental Property Investor from Santa Maria, CA
    Replied over 5 years ago
    Hi Max, Thanks for reading. I had my wife double-check the guidelines as of today, which as we all know they’re constantly changing. As of June 2013, an FHA loan with an LTV of less than 90% at the time of the loan is eligible to have the PMI removed after 11 years and 78% LTV. Thanks again for bringing this to everyone’s attention. Eric
    Replied over 5 years ago
    Jeff, Read the article more carefully. Eric DID NOT take the 26K option. All he did was make a phone call and pay for an appraisal. His advice was right on point.
    Replied over 5 years ago
    i thought of this a year ago and my lender Wells Fargo did offer the appraisal option, but only if the house has had improvements to justify the increase in value. Since we have not upgraded anything, they refused to remove PMI. Hence our only option was only to pay down to 78% or refi.
    Eric Black Rental Property Investor from Santa Maria, CA
    Replied over 5 years ago
    Hi Wendy, I would recommend calling Wells again. They did not ask me anything about improvements. The appraiser did but that is typical for an appraisal. Good luck! Eric
    Johnathon Griggs from Salt Lake City, UT
    Replied over 5 years ago
    Wendy, I have heard this on several occasions also, the home must have had improvements in order to qualify for re-appraisal. My wife and I are in the process of purchasing a short-sale with only 5% down and have been told that regardless of improvements, we will have to wait 2 yrs for another appraisal to eliminate the PMI.
    Dan B. Rental Property Investor from St Paul, MN
    Replied over 5 years ago
    Jeff- All Eric did was call and pay for an appraisal and the mortgage company dropped the PMI. Pretty good move. The $26k you refer to was the other option to getting the PMI removed. In my mind, this was perfect move, now that PMI is gone, he can go get a heloc to tap the equity to fund additional investment properties – and still not pay PMI. Nice move Eric!
    Eric Black Rental Property Investor from Santa Maria, CA
    Replied over 5 years ago
    Thanks Dan, Tapping our equity is exactly what we did, although technically we did that last month before getting our PMI removed. We purchased a property in Florida, the rehab is just about complete and will hopefully be going on the market late next week! Thanks for reading. Eric
    Tim Davids Real Estate Broker from NW Indiana
    Replied over 5 years ago
    If your stuck with a crappy bank or an 11 year wait how about selling the house to a relative or maybe a company you start. You’d have some closing costs but you may save many thousands not paying pmi for 11 years
    Replied over 5 years ago
    We are in almost the exact same boat, (and in California) except we bought in 2010. I tried calling our lender (B of A) and was told that you had to owe less than 80% of the home’s ORIGINAL value, so I’m still not sure what a reappraisal would do. I asked about this several times, and it was stressed to me again & again that the LtV ratio was calculated on the home’s original value when purchased, not what it is currently worth.
    Eric Black Rental Property Investor from Santa Maria, CA
    Replied over 5 years ago
    Hi Stacy, Without knowing your exact numbers I’ll have to use my scenario as an example. We purchased our house in 2012 for $225,000 and put 5% down so as of last month we owed just over $213,000. To show Wells Fargo that we owe less than 80% of the CURRENT value we had to have an appraisal done. According to Wells Fargo our house was worth what we bought it for, $225,000. After we had the appraisal done, which came in at $312,000, they were able to see that we owed less than 80% of the current value. As I mentioned, I would try calling them back to speak to someone else. Also, if you didn’t in your first call, be sure to ask for the department that handles PMI removal. Often the first person you talk to won’t know the rules. However, each bank is different and may have their own guidelines, and this may be one that BofA has. If so then there’s not a lot you can do besides paying down your mortgage however I would try calling back and questioning why they won’t use the current value of your home after an appraisal. Hopefully they can give you an explanation. Best of luck! Eric
    Deborah Smith Accountant from Chandler, AZ
    Replied over 5 years ago
    We have B of A and have the same issue. We purchased for about $150k, owe about $130k, and it’s worth about $250k. B of A still won’t do anything to remove the PMI until we’ve paid down to 80% of the original loan value. No dice on re-appraisal. We have tried several times.
    David DuCille Residential Real Estate Agent from Tampa, Florida
    Replied over 5 years ago
    Do a cash out refi and you will probably get a lower rate now plus some of that equity out to buy your next property and problem solved
    David DuCille Residential Real Estate Agent from Tampa, Florida
    Replied over 5 years ago
    I have heard of Stacy’s situation far more than yours. Its like the banks are in cahoots to force rate/term refis to be done. I’m in a similar situation. I bought my primary home with a 15yr mortgage at 3.5% and 5% down then we did a ton of upgrades. My lender won’t allow just a reappraisal, they will only remove if we get to 78% loan to original value. Rates have dipped in recent weeks so it may be worth paying closing costs to refi if we can get rate down to 2.85
    Sean Williams Real Estate Agent from Louisville, KY
    Replied over 5 years ago
    Great post and all valid points. I do the same thing with my rental property here in Louisville, KY. Since homes have appreciated recently, I just pay for the new appraisal and boom PMI gone!
    Eric Black Rental Property Investor from Santa Maria, CA
    Replied over 5 years ago
    Glad to hear it Sean!
    Aj Saporito
    Replied over 5 years ago
    I was able to refinance at 90% LTV with a mortgage Broker from FHA to conventional using LPMI (Lender Paid Mortgage Insurance), it’s same as PMI, instead of paying PMI you pay slightly higher rate. My FHA MIP payment was over $400, with new loan my intereste rate was higher but with no mortgage insurance. Long story short, I saved $300 a month. Most of these are advertised as “No Cost” refinance.
    Replied almost 5 years ago
    Thanks so much for sharing your story! It’s so nice to hear from someone who has already been through it all to learn exactly how to overcome these tough situations. Thanks so much for sharing!