Have equity in your home? Want a lower payment? An appraisal from Appraisals 101, LLC can help you get rid of your PMI.
A 20% down payment is typically accepted when purchasing a home. The lender's risk is oftentimes only the remainder between the home value and the amount remaining on the loan, so the 20% adds a nice buffer against the charges of foreclosure, selling the home again, and natural value fluctuations in the event a purchaser defaults.
During the recent mortgage boom of the last decade, it was widespread to see lenders taking down payments of 10, 5 or often 0 percent. A lender is able to handle the increased risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI guards the lender in the event a borrower is unable to pay on the loan and the market price of the home is less than what is owed on the loan.
Because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and generally isn't even tax deductible, PMI can be pricey to a borrower. It's profitable for the lender because they collect the money, and they receive payment if the borrower is unable to pay, different from a piggyback loan where the lender takes in all the damages.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How buyers can prevent paying PMI
The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. Savvy home owners can get off the hook a little earlier. The law states that, at the request of the home owner, the PMI must be abandoned when the principal amount equals only 80 percent.
Since it can take many years to get to the point where the principal is only 20% of the initial loan amount, it's essential to know how your home has appreciated in value. After all, all of the appreciation you've acquired over time counts towards dismissing PMI. So why should you pay it after the balance of your loan has dropped below the 80% mark? Your neighborhood may not be adhering to the national trends and/or your home may have acquired equity before things calmed down, so even when nationwide trends forecast declining home values, you should realize that real estate is local.
A certified, licensed real estate appraiser can help home owners understand just when their home's equity rises above the 20% point, as it's a tough thing to know. As appraisers, it's our job to keep up with the market dynamics of our area. At Appraisals 101, LLC, we're masters at pinpointing value trends in Orange & Seminole County and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will often drop the PMI with little trouble. At that 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: