When you sell your home in the United States, several factors come into play regarding your mortgage insurance, particularly if you have private mortgage insurance (PMI). Understanding these aspects can help you navigate the selling process smoothly.
First, it’s crucial to determine whether you have PMI. This type of insurance is typically required for conventional loans when a borrower puts down less than 20% of the home’s purchase price. If you have an FHA loan, you may have a different type of mortgage insurance called Mortgage Insurance Premium (MIP).
Once you decide to sell your home, the future of your mortgage insurance depends largely on whether you settle the loan before completing the sale. If you sell the property and pay off your mortgage in full, your mortgage insurance policy will automatically terminate. This means that you will not be liable for any further PMI or MIP payments.
It's important to note that if you have accumulated enough equity in your home, you may already qualify for the cancellation of PMI prior to selling. Under normal circumstances, if you reach 20% equity through mortgage payments and market appreciation, you can request cancellation of your PMI with your lender.
However, if you are in the process of selling and your previous payments are not enough to cancel PMI, you will still be accountable for the insurance until the closing of the sale. Once the home is sold and the loan is paid off, the insurance obligation ceases.
For FHA loans, MIP has different cancellation rules. If you have an FHA loan and you sell your home, you’ll still have to pay MIP until you pay off the loan entirely. Additionally, note that if your mortgage was originated on or after June 3, 2013, MIP lasts for the entirety of the loan term unless the principal balance reaches 78% of the original home value, at which point it can be canceled upon reaching that equity level.
Another factor to consider when selling your home is the overall impact on your financial situation. The proceeds from the sale may enable you to pay off your mortgage in full, potentially eliminating the need for mortgage insurance altogether. This can free up additional funds for your next home purchase.
In summary, when selling your home in the U.S., your mortgage insurance will end once the mortgage balance is settled during the sale. If you have PMI or MIP and are unsure of the specifics related to your loan, it’s advisable to consult your lender or financial advisor for personalized guidance. Being informed can help you make the most of your sale and avoid any unexpected charges related to mortgage insurance.
