Let Astute Appraisals, Inc. help you discover if you can eliminate your PMI
A 20% down payment is usually accepted when buying a house. The lender's liability is generally only the remainder between the home value and the sum outstanding on the loan, so the 20% adds a nice buffer against the costs of foreclosure, selling the home again, and typical value changes on the chance that a purchaser doesn't pay.
The market was taking down payments as low as 10, 5 and often 0 percent in the peak of last decade's mortgage boom. A lender is able to manage the increased risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI takes care of the lender in case a borrower doesn't pay on the loan and the value of the property is less than what is owed on the loan.
PMI can be expensive to a borrower because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and many times isn't even tax deductible. It's money-making for the lender because they acquire the money, and they get the money if the borrower defaults, contradictory to a piggyback loan where the lender consumes all the damages.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can home owners refrain from paying PMI?
With the utilization of The Homeowners Protection Act of 1998, on nearly all loans lenders are required to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Smart home owners can get off the hook ahead of time. The law guarantees that, at the request of the homeowner, the PMI must be abandoned when the principal amount reaches just 80 percent.
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 grown in value. After all, every bit of appreciation you've gained over the years counts towards abolishing PMI. So why should you pay it after your loan balance has fallen below the 80% threshold? Your neighborhood might not be reflecting the national trends and/or your home may have acquired equity before things cooled off, so even when nationwide trends indicate falling home values, you should realize that real estate is local.
The difficult thing for many home owners to understand is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can surely help. It's an appraiser's job to recognize the market dynamics of their 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 usually remove the PMI with little effort. At that time, the home owner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: