Let Associate Appraisers of America help you learn if you can get rid of your PMI
When getting a mortgage, a 20% down payment is usually the standard. The lender's liability is oftentimes only the remainder between the home value and the sum due on the loan, so the 20% provides a nice buffer against the costs of foreclosure, reselling the home, and natural value changes on the chance that a borrower defaults.
During the recent mortgage boom of the last decade, it was common to see lenders requiring down payments of 10, 5 or often 0 percent. A lender is able to handle the added risk of the reduced down payment with Private Mortgage Insurance or PMI. This supplementary policy takes care of the lender in case a borrower doesn't pay on the loan and the market price of the home is less than the balance of the loan.
PMI can be costly to a borrower in that the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and generally isn't even tax deductible. Different from a piggyback loan where the lender consumes all the losses, PMI is beneficial for the lender because they obtain the money, and they get paid if the borrower doesn't pay.
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?
With the employment of The Homeowners Protection Act of 1998, on nearly all loans lenders are obligated to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. Acute homeowners can get off the hook beforehand. The law pledges that, upon request of the homeowner, the PMI must be dropped when the principal amount equals just 80 percent.
It can take countless years to get to the point where the principal is only 20% of the original amount of the loan, so it's necessary to know how your home has increased in value. After all, any appreciation you've gained over the years counts towards abolishing PMI. So why should you pay it after the balance of your loan has fallen below the 80% threshold? Despite the fact that nationwide trends hint at plunging home values, be aware that real estate is local. Your neighborhood might not be adhering to the national trends and/or your home may have acquired equity before things calmed down.
The hardest thing for many homeowners to understand is just when their home's equity goes over 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 generally cancel the PMI with little trouble. At which time, the home owner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: