Have equity in your home? Want a lower payment? An appraisal from Verschelden Appraisals can help you get rid of your PMI.
It's generally understood that a 20% down payment is accepted when purchasing a home. The lender's risk is oftentimes only the remainder between the home value and the amount due on the loan, so the 20% provides a nice buffer against the charges of foreclosure, selling the home again, and natural value variations on the chance that a borrower doesn't pay.
During the recent mortgage upturn of the mid 2000s, it became common to see lenders commanding down payments of 10, 5 or often 0 percent. A lender is able to endure the increased risk of the small down payment with Private Mortgage Insurance or PMI. This supplementary plan takes care of the lender if a borrower defaults on the loan and the value of the house 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 monthly payment and often isn't even tax deductible, PMI can be costly to a borrower. It's profitable for the lender because they collect the money, and they get the money if the borrower is unable to pay, separate from a piggyback loan where the lender absorbs all the deficits.
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 cost of PMI
With the employment of The Homeowners Protection Act of 1998, on most loans lenders are required to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. The law designates that, at the request of the home owner, the PMI must be dropped when the principal amount reaches only 80 percent. So, smart home owners can get off the hook sooner than expected.
Since it can take countless years to get to the point where the principal is only 20% of the original amount borrowed, it's crucial to know how your home has increased in value. After all, every bit of appreciation you've achieved over the years counts towards abolishing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% threshold? Your neighborhood might not be adhering to the national trends and/or your home may have secured equity before things simmered down, so even when nationwide trends signify plummeting home values, you should realize that real estate is local.
A certified, licensed real estate appraiser can help homeowners understand just when their home's equity goes over the 20% point, as it's a tough thing to know. It is an appraiser's job to understand the market dynamics of their area. At Verschelden Appraisals, we're masters at analyzing value trends in Modesto, Stanislaus County and surrounding areas, and we know when property values have risen or declined. When faced with information from an appraiser, the mortgage company will often drop the PMI with little anxiety. At which 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: