Have equity in your home? Want a lower payment? An appraisal from Associate Appraisers of America can help you get rid of your PMI.
It's typically understood that a 20% down payment is common when buying a house. The lender's risk is generally only the difference between the home value and the sum outstanding on the loan, so the 20% adds a nice cushion against the charges of foreclosure, reselling the home, and natural value variations on the chance that a borrower is unable to pay.
During the recent mortgage boom of the mid 2000s, it was customary to see lenders taking down payments of 10, 5 or often 0 percent. A lender is able to manage the increased risk of the small down payment with Private Mortgage Insurance or PMI. This additional plan covers the lender in the event a borrower is unable to pay on the loan and the market price of the property is lower than the balance of the loan.
PMI can be costly to a borrower because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and often isn't even tax deductible. It's money-making for the lender because they collect the money, and they receive payment if the borrower is unable to pay, opposite from a piggyback loan where the lender takes in all the damages.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a buyer avoid paying PMI?
With the utilization of The Homeowners Protection Act of 1998, on most loans lenders are required to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. The law stipulates that, at the request of the home owner, the PMI must be released when the principal amount equals only 80 percent. So, wise home owners can get off the hook ahead of time.
It can take many years to arrive at the point where the principal is just 20% of the original amount of the loan, so it's important to know how your home has appreciated in value. After all, all of the appreciation you've acquired over the years counts towards removing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% threshold? Your neighborhood might not be following the national trends and/or your home may have acquired equity before things cooled off, so even when nationwide trends forecast declining home values, you should realize that real estate is local.
A certified, licensed real estate appraiser can help home owners understand just when their home's equity rises above the 20% point, as it's a hard thing to know. 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 usually eliminate the PMI with little anxiety. At which time, the home owner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: