New Fannie Mae Rules for Dropping Mortgage Insurance
Fannie Mae has changed the rules for when mortgage insurance goes away – and it is a good change!
Here are the details.
Old Fannie Mae Rules
The old Fannie Mae rules stated that mortgage insurance for conventional loans automatically goes away once the borrower has 22% equity in the property, based on the original amortization schedule. In addition, the borrower can request that it go away once they have 20% equity in the property, but the decision about whether to drop the mortgage insurance was up to the servicing lender.
New Fannie Mae Rules
The new Fannie Mae rules state that the mortgage insurance goes away once the borrower has 22% equity in the property (this part has not changed). However, the new rules also state that if the borrower can prove they have 20% equity in the property (because they made additional principal payments, or an appraisal shows that they have 20% equity), the lender must remove the mortgage insurance, provided the borrower has had the loan for at least 5 years. If they have had the loan for anywhere between 2-5 years, they need to have 25% equity in the property. In addition, regardless of the equity they have in the property, they must have an acceptable payment record. That means no payments 30 days or more past due in the past 12 months, and no payments 60 days or more past due in the past 24 months.
What It Means
The decision is no longer at the whim of the lender. The lender must remove the mortgage insurance if the borrower meets the eligibility criteria above. This is great news for borrowers in the Denver Metro area, where houses are appreciating at a rapid pace.
If you have any questions about whether you qualify to drop your mortgage insurance, give us a call.