Let Astute Appraisals, Inc. help you determine if you can eliminate your PMI
A 20% down payment is usually the standard 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 costs of foreclosure, selling the home again, and regular value variations on the chance that a purchaser defaults.
Banks were accepting down payments down to 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender manage the additional risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI protects the lender in case a borrower is unable to pay on the loan and the market price of the house is lower than the loan balance.
PMI can be expensive to a borrower in that the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and frequently isn't even tax deductible. It's profitable 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 takes in 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 buyers keep from paying PMI?
The Homeowners Protection Act of 1998 makes the lenders on most loans to automatically cease the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. Keen home owners can get off the hook beforehand. The law guarantees that, upon request of the homeowner, the PMI must be abandoned when the principal amount reaches just 80 percent.
It can take many years to arrive at the point where the principal is just 20% of the initial loan amount, so it's essential to know how your home has appreciated in value. After all, any appreciation you've accomplished over the years counts towards dismissing PMI. So why should you pay it after the balance of your loan has dropped below the 80% mark? Despite the fact that nationwide trends hint at plummeting home values, be aware that real estate is local. Your neighborhood may not be following the national trends and/or your home could have gained equity before things simmered down.
The hardest thing for many home owners to know is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can certainly help. As appraisers, it's our job to understand the market dynamics of our area. At Astute Appraisals, Inc., we're experts at analyzing value trends in Columbia, Howard County and surrounding areas, and we know when property values have risen or declined. When faced with information from an appraiser, the mortgage company will generally do away with 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: