Have equity in your home? Want a lower payment? An appraisal from AppraisalWorks can help you get rid of your PMI.
When purchasing a home, a 20% down payment is usually the standard. Because the liability for the lender is usually only the remainder between the home value and the sum remaining on the loan, the 20% supplies a nice cushion against the costs of foreclosure, reselling the home, and regular value variationsin the event a purchaser defaults.
The market was accepting down payments as low as 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender handle the additional risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI guards the lender if a borrower defaults on the loan and the worth of the property is less than what the borrower still owes on the loan.
PMI is costly to a borrower because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and many times isn't even tax deductible. Opposite from a piggyback loan where the lender absorbs all the deficits, PMI is beneficial for the lender because they secure the money, and they receive payment if the borrower defaults.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How home buyers can avoid paying PMI
The Homeowners Protection Act of 1998 requires the lenders on most loans to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Acute homeowners can get off the hook a little early. The law designates that, at the request of the homeowner, the PMI must be dropped when the principal amount equals just 80 percent.
It can take many years to get to the point where the principal is only 20% of the initial amount of the loan, so it's necessary to know how your home has appreciated in value. After all, any appreciation you've obtained over time counts towards abolishing PMI. So why pay it after the balance of your loan has fallen below the 80% threshold? Your neighborhood might not be adopting the national trends and/or your home might have gained equity before things simmered down, so even when nationwide trends signify declining home values, you should realize that real estate is local.
The hardest thing for most homeowners to understand is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can certainly help. As appraisers, it's our job to keep up with the market dynamics of our area. At AppraisalWorks, we're masters at determining value trends in Sherman Oaks, Los Angeles 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 cancel the PMI with little effort. 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: