Let Appraisal House, Inc. help you figure out if you can get rid of your PMI
When purchasing a home, a 20% down payment is usually the standard. The lender's risk is usually only the remainder between the home value and the sum outstanding on the loan, so the 20% provides a nice buffer against the costs of foreclosure, selling the home again, and typical value variations on the chance that a borrower defaults.
During the recent mortgage upturn of the mid 2000s, it became customary to see lenders taking down payments of 10, 5 or often 0 percent. How does a lender manage the added risk of the small down payment? The solution is 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 market price of the home is less than what is owed on the loan.
Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and generally isn't even tax deductible, PMI is pricey to a borrower. Opposite from a piggyback loan where the lender absorbs all the deficits, PMI is lucrative for the lender because they acquire the money, and they receive payment if the borrower is unable to 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 buyer avoid paying PMI?
The Homeowners Protection Act of 1998 obligates the lenders on most loans to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. The law designates that, upon request of the home owner, the PMI must be dropped when the principal amount equals just 80 percent. So, smart homeowners can get off the hook sooner than expected.
It can take countless years to reach the point where the principal is only 20% of the initial loan amount, so it's important to know how your home has appreciated in value. After all, any appreciation you've gained over time counts towards removing PMI. So why pay it after your loan balance has dropped below the 80% threshold? Your neighborhood might not be adopting the national trends and/or your home might have acquired equity before things simmered down, so even when nationwide trends forecast falling home values, you should understand that real estate is local.
The hardest thing for almost all homeowners to understand is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can definitely help. As appraisers, it's our job to understand the market dynamics of our area. At Appraisal House, Inc., we're masters at identifying value trends in Destin, Okaloosa County and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will often remove the PMI with little trouble. 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: