Let The Appraisal Shoppe help you figure out if you can eliminate 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 remaining on the loan, so the 20% supplies a nice buffer against the expenses of foreclosure, reselling the home, and regular value changes in the event a borrower is unable to pay.
During the recent mortgage upturn of the mid 2000s, it became customary to see lenders requiring down payments of 10, 5 or sometimes 0 percent. How does a lender endure the added risk of the low down payment? The answer is Private Mortgage Insurance or PMI. This additional policy covers the lender in the event a borrower defaults on the loan and the worth of the property is lower than what is owed on the loan.
PMI can be expensive to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and oftentimes isn't even tax deductible. It's money-making for the lender because they obtain the money, and they receive payment if the borrower defaults, opposite 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 buyers can keep from bearing the cost of 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 reaches 78 percent of the beginning loan amount. Savvy homeowners can get off the hook ahead of time. The law states that, upon request of the homeowner, the PMI must be abandoned when the principal amount equals only 80 percent.
It can take countless years to reach the point where the principal is only 20% of the original amount borrowed, so it's necessary to know how your home has grown in value. After all, all of the appreciation you've acquired over the years counts towards dismissing PMI. So why pay it after your loan balance has fallen below the 80% mark? Your neighborhood may not be minding the national trends and/or your home could have gained equity before things simmered down, so even when nationwide trends signify plummeting home values, you should understand that real estate is local.
The difficult thing for many homeowners to understand is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can certainly help. It's an appraiser's job to understand the market dynamics of their area. At The Appraisal Shoppe, we're masters at identifying value trends in Chino, San Bernardino County and surrounding areas, and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will usually do away with the PMI with little anxiety. At which time, the homeowner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: