After how many years can a borrower drop PMI if he pays off $10,000 per year on his $280,000 house, with 100% financing?

To determine how many years it will take for the borrower to be able to drop Private Mortgage Insurance (PMI), it's essential to understand how PMI works and how it is related to the equity in the property. PMI is typically required when the borrower makes a down payment of less than 20% of the home's purchase price. In this case, with 100% financing on a $280,000 home, the borrower has no equity initially, making PMI a requirement.

Equity in a home increases as the homeowner pays down the mortgage principal. In this scenario, the borrower is paying off $10,000 annually. The yearly payment towards the principal will contribute to building equity in the home.

To determine how long it will take to convince the lender that there is sufficient equity to drop PMI, we first need to calculate how much equity the borrower will gain each year due to these payments:

• After 1 year: $10,000 equity
• After 2 years: $20,000 equity
• After 3 years: $30,000 equity
• After 4 years: $40,000 equity
• After 5 years: $50,000 equity
• After 6 years: $60,000 equity