Have equity in your home? Want a lower payment? An appraisal from Verschelden Appraisals can help you get rid of your PMI.
When getting a mortgage, a 20% down payment is typically the standard. The lender's risk is generally only the difference between the home value and the amount outstanding on the loan, so the 20% provides a nice buffer against the costs of foreclosure, reselling the home, and natural value fluctuations on the chance that a purchaser is unable to pay.
Lenders were taking down payments down to 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender manage the increased risk of the low down payment? The answer is Private Mortgage Insurance or PMI. This supplementary plan covers the lender in case a borrower defaults on the loan and the market price of the property is less than the loan balance.
PMI can be expensive to a borrower because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and oftentimes isn't even tax deductible. It's beneficial for the lender because they acquire the money, and they receive payment if the borrower doesn't pay, unlike a piggyback loan where the lender takes in all the deficits.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a homeowner refrain from bearing the cost of PMI?
With the implementation of The Homeowners Protection Act of 1998, on nearly all loans lenders are obligated to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law promises that, upon request of the home owner, the PMI must be released when the principal amount equals just 80 percent. So, wise home owners can get off the hook a little earlier.
Considering it can take countless years to get to the point where the principal is just 20% of the initial amount borrowed, it's crucial to know how your home has grown in value. After all, every bit of appreciation you've obtained over the years counts towards removing PMI. So why pay it after the balance of your loan has fallen below the 80% mark? Despite the fact that nationwide trends signify declining home values, understand that real estate is local. Your neighborhood may not be adopting the national trends and/or your home may have acquired equity before things simmered down.
The difficult thing for many home owners to know is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can surely help. As appraisers, it's our job to keep up with the market dynamics of our area. At Verschelden Appraisals, we're experts at analyzing value trends in Modesto, Stanislaus 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 often do away with the PMI with little trouble. At which time, the home owner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: