Have equity in your home? Want a lower payment? An appraisal from Associate Appraisers of America can help you get rid of your PMI.
When getting a mortgage, a 20% down payment is usually the standard. Since the risk for the lender is oftentimes only the remainder between the home value and the amount outstanding on the loan, the 20% adds a nice buffer against the costs of foreclosure, selling the home again, and regular value fluctuationson the chance that a borrower defaults.
During the recent mortgage boom of the mid 2000s, it became widespread to see lenders taking down payments of 10, 5 or often 0 percent. A lender is able to handle the additional risk of the low down payment with Private Mortgage Insurance or PMI. This added plan covers the lender in the event a borrower defaults on the loan and the value of the home is less than the loan balance.
Because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and oftentimes isn't even tax deductible, PMI can be pricey to a borrower. It's advantageous for the lender because they collect the money, and they receive payment if the borrower defaults, different from a piggyback loan where the lender takes in all the costs.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a home owner avoid bearing the cost of PMI?
The Homeowners Protection Act of 1998 makes the lenders on most loans to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. Wise home owners can get off the hook beforehand. The law pledges that, upon request of the homeowner, the PMI must be dropped when the principal amount reaches just 80 percent.
It can take many years to get to the point where the principal is just 20% of the original loan amount, so it's necessary to know how your home has appreciated in value. After all, all of the appreciation you've achieved over time counts towards abolishing PMI. So why pay it after your loan balance has fallen below the 80% threshold? Your neighborhood might not be reflecting the national trends and/or your home may have secured equity before things calmed down, so even when nationwide trends indicate falling home values, you should realize that real estate is local.
The toughest thing for almost all home owners to understand is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can certainly help. As appraisers, it's our job to know the market dynamics of our area. At Associate Appraisers of America, we know when property values have risen or declined. We're masters at determining value trends in Seal Beach, Orange County and surrounding areas. Faced with data from an appraiser, the mortgage company will most often eliminate the PMI with little anxiety. At that time, the homeowner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: