70% LTV to remove PMI?

Question

I recently asked my lender about when I might be able to remove PMI from my loan. I have a rental property with a conventional loan. I put down 15% thinking I would be able to remove PMI pretty soon after building a little equity.

I've only ever heard people say you need an 80% LTV to remove PMI so I'm a little confused. I asked the lender why I needed the higher ratio and all they said was because it's an investment loan. I asked if that was just the ratio for automatic removal and they said no, that's what I would need to request removal period.

Does anyone else have any more insight or experienced this situation? I'm bummed that I'm further away from removing PMI than I thought.

Secondary question: Do you all receive annual PMI Disclosure Notices? I've only received one for the first time this year after owning properties for 4 years (different property from the one in this question).

James Driscoll · Answer

Your lender is correct, and the 70% LTV threshold for investment properties is standard under Fannie Mae guidelines, not just your lender's preference. The Homeowners Protection Act (HPA) governs PMI cancellation on primary residences and sets that 80% LTV threshold you've heard about. Investment properties follow conventional guidelines instead, and Fannie Mae requires you to reach 70% LTV before you can request cancellation on a non-owner-occupied property. So the difference isn't arbitrary, it reflects how the agencies price risk on rental properties versus primary residences.

On the annual PMI Disclosure Notice: yes, lenders are supposed to send those every year, but enforcement of that requirement has been inconsistent in practice. Getting one after four years of ownership is a problem on their end.

As for refinancing to eliminate PMI, that can work, but run the math carefully before you go that route. If your current rate is significantly below where rates are today, you could trade a PMI payment for a materially higher rate and actually come out behind on monthly cash flow. On a rental, monthly cash flow is what matters most. A refinance makes more sense if you're close to 70% LTV now and the new rate is close enough to your existing rate that the PMI savings outweigh the cost. With 31 years in the mortgage business I've seen a lot of borrowers refinance out of PMI only to realize the rate difference ate up the savings within a year. Model it out before pulling the trigger.

Andrew Postell · Answer

@Melissa Grayson you have some good comments above and as you can see, we all know that your scenario is accurate.  Sorry this wasn't disclosed to you in an impactful way when you purchased the home.  There is still a chance to remove the PMI (as mentioned above) but if those scenarios don't benefit you, then 30% equity is what you need on a rental property.

Hope the property is performing well at least.

Alan F. · Answer

Pay a little extra on principle each month, put in some sweat equity & re-appraise.

Melissa Grayson · Answer

Thank you for the thorough reply and answering my main and secondary questions! I appreciate the extra context since this 70% requirement is new to me.

Bryan Maddex · Answer

-Loan seasoning greater than 2 years.

-Value must also be at least as high as when you purchased.

-If you did substantial improvements, you may be able to do this with less than 2 year payment history.

No 30 day lates in the last 12 months and no 60 day lates in the last 24 months.

Primary residences fall off if you pay the principle balance down to 80% of the original purchase price or 78% when making scheduled payments.

On primary homes, its actually 75% LTV if years 2-5 and 80% if 5+ years.

Now, on to refi options, many times you can do a dscr loan with a prepayment penalty and get the rates into the mid 6s with no points at 75%. 80% may be a bit higher.

Make sure you speak to a broker who can price both conventional loans, nonqm full doc loans and dscr loans to really know what all options are.

Side note, smaller loan or rates in the mid 6s or less, no refi will make sense. Your PMI is likely $40-$90 a month for an average investment property.

Tell us more details and I'll tell you the truth as if you were family instead of suggesting a refi out of the gate.

Erik Estrada · Answer

It sounds like a refinance may help lower your monthly payment and remove your PMI. What is your current mtg rate?

Melissa Grayson · Answer

Yeah, the property is doing well and there’s no real rush to remove PMI, I was just disappointed with this revelation about the 70% requirement! Thanks for confirming.

Bryan Maddex · Answer

My pleasure!

70% LTV to remove PMI?

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