Let Appraisal-One help you discover if you can eliminate 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 outstanding on the loan, so the 20% provides a nice cushion against the expenses of foreclosure, selling the home again, and typical value variations on the chance that a purchaser defaults.
During the recent mortgage upturn of the last decade, it was common to see lenders requiring down payments of 10, 5 or even 0 percent. How does a lender handle the additional risk of the low down payment? The solution is Private Mortgage Insurance or PMI. This additional plan takes care of the lender if a borrower doesn't pay on the loan and the market price of the house is lower than the balance of the loan.
PMI can be pricey to a borrower in that the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and many times isn't even tax deductible. It's advantageous for the lender because they collect the money, and they get the money if the borrower doesn't pay, separate from a piggyback loan where the lender consumes 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 buyer prevent bearing the cost of PMI?
The Homeowners Protection Act of 1998 requires the lenders on most loans to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. The law promises that, at the request of the homeowner, the PMI must be dropped when the principal amount equals only 80 percent. So, wise home owners can get off the hook ahead of time.
It can take countless years to get to the point where the principal is only 20% of the initial amount of the loan, so it's essential to know how your home has appreciated in value. After all, every bit of appreciation you've gained over the years counts towards removing PMI. So why pay it after the balance of your loan has dropped below the 80% threshold? Despite the fact that nationwide trends signify declining home values, realize that real estate is local. Your neighborhood might not be adopting the national trends and/or your home may have acquired equity before things cooled off.
A certified, licensed real estate appraiser can help homeowners understand just when their home's equity rises above the 20% point, as it's a difficult thing to know. As appraisers, it's our job to know the market dynamics of our area. At Appraisal-One, we know when property values have risen or declined. We're experts at pinpointing value trends in Huntington Beach, Orange County and surrounding areas. When faced with information from an appraiser, the mortgage company will generally do away with the PMI with little effort. At that time, the homeowner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: