Have equity in your home? Want a lower payment? An appraisal from Astute Appraisals, Inc. can help you get rid of your PMI.
A 20% down payment is typically the standard when purchasing a home. The lender's liability is often 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, reselling the home, and typical value changes on the chance that a borrower doesn't pay.
During the recent mortgage boom of the last decade, it became common to see lenders requiring down payments of 10, 5 or often 0 percent. A lender is able to manage the added risk of the small down payment with Private Mortgage Insurance or PMI. PMI takes care of the lender if a borrower defaults on the loan and the value of the house is lower than the balance of the loan.
Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and generally isn't even tax deductible, PMI is costly to a borrower. It's lucrative for the lender because they acquire the money, and they receive payment if the borrower is unable to pay, separate from a piggyback loan where the lender consumes all the deficits.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can home buyers avoid paying PMI?
The Homeowners Protection Act of 1998 makes the lenders on nearly all loans to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. The law pledges that, upon request of the home owner, the PMI must be dropped when the principal amount reaches just 80 percent. So, smart homeowners can get off the hook ahead of time.
Considering it can take countless years to get to the point where the principal is only 20% of the initial amount borrowed, it's important to know how your home has increased in value. After all, all of the appreciation you've obtained over time counts towards removing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% threshold? Even when nationwide trends forecast declining home values, understand that real estate is local. Your neighborhood may not be heeding the national trends and/or your home might have secured equity before things calmed down.
An accredited, licensed real estate appraiser can help home owners understand just when their home's equity goes over the 20% point, as it's a difficult thing to know. It is an appraiser's job to keep up with the market dynamics of their area. At Astute Appraisals, Inc., we know when property values have risen or declined. We're experts at analyzing value trends in Columbia, Howard County and surrounding areas. When faced with data from an appraiser, the mortgage company will most often remove the PMI with little anxiety. At that time, the home owner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: