Have equity in your home? Want a lower payment? An appraisal from Advanced Appraisal Services can help you get rid of your PMI.
It's generally inferred that a 20% down payment is common when buying a house. The lender's risk is usually only the difference between the home value and the sum remaining on the loan, so the 20% adds a nice buffer against the costs of foreclosure, reselling the home, and typical value fluctuations in the event a borrower defaults.
During the recent mortgage boom of the mid 2000s, it was common to see lenders requiring down payments of 10, 5 or even 0 percent. How does a lender endure the additional risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI guards the lender in case a borrower doesn't pay on the loan and the market price of the property is lower than what the borrower still owes on the loan.
Because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and frequently isn't even tax deductible, PMI can be expensive to a borrower. It's advantageous for the lender because they obtain the money, and they receive payment if the borrower doesn't pay, separate from a piggyback loan where the lender absorbs all the damages.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How home owners can prevent bearing the expense of PMI
With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are forced to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. Acute homeowners can get off the hook sooner than expected. The law stipulates that, upon request of the home owner, the PMI must be dropped when the principal amount reaches only 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 crucial to know how your home has grown in value. After all, any appreciation you've gained over the years counts towards dismissing PMI. So why pay it after the balance of your loan has fallen below the 80% threshold? Despite the fact that nationwide trends predict declining home values, understand that real estate is local. Your neighborhood may not be heeding the national trends and/or your home could have gained equity before things calmed down.
The hardest thing for almost all home owners to understand is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can surely help. It is an appraiser's job to keep up with the market dynamics of their area. At Advanced Appraisal Services, we know when property values have risen or declined. We're masters at recognizing value trends in Millbrook, Elmore County and surrounding areas. When faced with figures from an appraiser, the mortgage company will usually drop the PMI with little anxiety. At that time, the homeowner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: