Let Associate Appraisers of America help you determine if you can eliminate your PMI
A 20% down payment is usually accepted when getting a mortgage. The lender's risk is usually only the remainder between the home value and the sum due on the loan, so the 20% supplies a nice buffer against the costs of foreclosure, reselling the home, and regular value changes on the chance that a borrower defaults.
During the recent mortgage upturn of the mid 2000s, it was widespread to see lenders requiring down payments of 10, 5 or sometimes 0 percent. A lender is able to endure the additional risk of the small down payment with Private Mortgage Insurance or PMI. This supplemental policy takes care of the lender in the event a borrower doesn't pay on the loan and the worth of the house is less than what is owed on the loan.
Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and generally isn't even tax deductible, PMI can be expensive to a borrower. It's money-making for the lender because they acquire the money, and they get the money if the borrower defaults, separate from a piggyback loan where the lender consumes all the losses.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a home buyer keep from bearing the expense of PMI?
The Homeowners Protection Act of 1998 forces the lenders on most loans to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. Keen home owners can get off the hook a little early. The law pledges that, upon request of the home owner, the PMI must be dropped when the principal amount equals just 80 percent.
It can take countless years to reach the point where the principal is only 20% of the original amount borrowed, so it's important to know how your home has increased in value. After all, any appreciation you've acquired over time counts towards removing PMI. So what's the reason for paying it after the balance of your loan has fallen below the 80% threshold? Even when nationwide trends hint at declining home values, be aware that real estate is local. Your neighborhood may not be adopting the national trends and/or your home could have acquired equity before things cooled off.
The difficult thing for many home owners to know is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can certainly help. It is an appraiser's job to understand the market dynamics of their area. At Associate Appraisers of America, we know when property values have risen or declined. We're experts at pinpointing value trends in Seal Beach, Orange County and surrounding areas. When faced with information from an appraiser, the mortgage company will usually eliminate the PMI with little anxiety. At that 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: