Let Mitchell Appraisals help you learn if you can get rid of your PMI
A 20% down payment is usually the standard when buying a house. The lender's liability is oftentimes only the difference between the home value and the amount remaining on the loan, so the 20% provides a nice cushion against the expenses of foreclosure, reselling the home, and natural value fluctuations on the chance that a purchaser is unable to pay.
During the recent mortgage upturn of the mid 2000s, it was common to see lenders taking down payments of 10, 5 or often 0 percent. How does a lender handle the additional risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI protects the lender if a borrower doesn't pay on the loan and the market price of the property is less than what is owed on the loan.
PMI can be expensive to a borrower in that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and many times isn't even tax deductible. Unlike a piggyback loan where the lender absorbs all the losses, PMI is advantageous for the lender because they secure the money, and they get paid if the borrower is unable to pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How homebuyers can prevent bearing the cost of PMI
The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the original loan amount. Keen homeowners can get off the hook beforehand. The law promises that, at the request of the homeowner, the PMI must be abandoned 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 original amount of the loan, so it's essential to know how your home has appreciated in value. After all, all of the appreciation you've accomplished over time counts towards abolishing PMI. So what's the reason for paying it after your loan balance has fallen below the 80% threshold? Your neighborhood may not be following the national trends and/or your home might have gained equity before things calmed down, so even when nationwide trends predict declining home values, you should realize that real estate is local.
The difficult thing for most home owners to know 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 recognize the market dynamics of their area. At Mitchell Appraisals, we know when property values have risen or declined. We're experts at recognizing value trends in MILTON, Santa Rosa County and surrounding areas. Faced with information from an appraiser, the mortgage company will often cancel the PMI with little anxiety. At that time, the homeowner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: