Have equity in your home? Want a lower payment? An appraisal from Appraisal Advantage, Inc. can help you get rid of your PMI.
When purchasing a home, a 20% down payment is usually the standard. The lender's risk is oftentimes only the difference between the home value and the sum remaining on the loan, so the 20% provides a nice cushion against the costs of foreclosure, reselling the home, and natural value fluctuations in the event a borrower doesn't pay.
During the recent mortgage upturn of the last decade, it was customary to see lenders commanding down payments of 10, 5 or often 0 percent. How does a lender manage the additional risk of the low down payment? The answer is Private Mortgage Insurance or PMI. This supplemental policy protects 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 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 is costly to a borrower. Different from a piggyback loan where the lender takes in all the costs, PMI is favorable for the lender because they collect the money, and they get the money 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 homebuyers refrain from bearing the expense of PMI?
The Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. Smart home owners can get off the hook a little early. The law pledges that, upon request of the homeowner, the PMI must be released when the principal amount equals just 80 percent.
It can take many years to reach the point where the principal is just 20% of the initial amount borrowed, so it's important to know how your home has increased in value. After all, every bit of appreciation you've acquired over the years counts towards dismissing PMI. So why pay it after the balance of your loan has dropped below the 80% mark? Even when nationwide trends indicate plummeting home values, be aware that real estate is local. Your neighborhood might not be reflecting the national trends and/or your home could have gained equity before things cooled off.
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. It is an appraiser's job to recognize the market dynamics of their area. At Appraisal Advantage, Inc., we know when property values have risen or declined. We're masters at determining value trends in Leesburg, Lake County and surrounding areas. When faced with information from an appraiser, the mortgage company will generally cancel the PMI with little anxiety. At that time, the homeowner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: