Q: I purchased an investment property in March, 2005 with 10 percent down. I am paying private mortgage insurance (PMI).

The house has appreciated and I’d like to get it re-appraised so the PMI can be canceled.

According to Family Housing Act, when the mortgage is less that 80 percent of the value of the home, then PMI should be canceled at the owner’s request. But when I requested the PMI deletion requirements from the mortgage company, they sent me a letter stating for the PMI to be canceled that I had to prove I made capital improvements to the property to increase the property’s value.

When I sent them a letter explaining what I had done and how I’d like them to cancel PMI, they sent me a letter back saying that because it is an investment property, the laws do not apply. Is this true? And if it is true, do you have any tips on what I can do to cancel PMI?

A: Since you brought up the Family Housing Act, let’s start there. The Act only comes into play once you have owned the property for 3 to 5 years, and have lived in it as your primary residence.

For the first two years you own your primary residence, lenders have the right to require you to actually pay down your loan with cash or prove that you have made capital improvements in order to enhance the value of the property.

You cannot solely rely on home value appreciation in order to meet the 20 percent equity threshold. That’s a common mistake homeowners make.

And in any case, the property is an investment property, not a personal residence. I don’t know whether you got a loan that was intended for an owner-occupied residence (did you sign a piece of paper stating that you intended to live in the property?), but investment property are not subject to the Family Housing Act.

What can you do now? If you want, you can simply refinance your loan. But as a rental property, you may pay a higher interest rate, plus more points and fees than your current property. On the other hand, you might not have PMI payments.

Your best bet is to try to pay down the loan to the 20 percent level. Then, you can request that the lender cancel your PMI.

Published: Jun 17, 2006