Have equity in your home? Want a lower payment? An appraisal from Verschelden Appraisals can help you get rid of your PMI.
It's widely known that a 20% down payment is accepted when buying a house. Since the risk for the lender is often only the remainder between the home value and the sum outstanding on the loan, the 20% supplies a nice buffer against the expenses of foreclosure, selling the home again, and natural value changeson the chance that a borrower is unable to pay.
During the recent mortgage upturn of the mid 2000s, it was widespread to see lenders commanding down payments of 10, 5 or sometimes 0 percent. How does a lender handle the added risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI covers the lender if a borrower doesn't pay on the loan and the worth of the home is lower than what the borrower still owes on the loan.
Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and many times isn't even tax deductible, PMI can be expensive to a borrower. It's advantageous for the lender because they collect the money, and they receive payment if the borrower is unable to pay, opposite from 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 home buyers avoid paying PMI?
With the implementation of The Homeowners Protection Act of 1998, on nearly all loans lenders are obligated 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 sooner than expected. The law promises that, at the request of the homeowner, the PMI must be released when the principal amount reaches only 80 percent.
Considering it can take many years to reach 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 gained over time counts towards removing PMI. So why should you pay it after your loan balance has fallen below the 80% threshold? Your neighborhood may not be adopting the national trends and/or your home may have secured equity before things calmed down, so even when nationwide trends hint at plunging home values, you should realize that real estate is local.
The hardest thing for almost all home owners to understand is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can certainly help. As appraisers, it's our job to understand the market dynamics of our area. At Verschelden Appraisals, we know when property values have risen or declined. We're masters at determining value trends in Modesto, Stanislaus County and surrounding areas. Faced with information from an appraiser, the mortgage company will usually remove the PMI with little anxiety. At that 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: