Let The Appraisal Firm help you decide if you can cancel your PMI
A 20% down payment is usually the standard when buying a house. Because the risk for the lender is usually only the remainder between the home value and the sum remaining on the loan, the 20% supplies a nice buffer against the costs of foreclosure, reselling the home, and regular value fluctuationsin the event a purchaser doesn't pay.
During the recent mortgage boom of the last decade, it became widespread to see lenders commanding down payments of 10, 5 or sometimes 0 percent. A lender is able to handle the added risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI covers the lender in the event a borrower is unable to pay on the loan and the worth of the house is lower than the loan balance.
PMI is pricey to a borrower in that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and oftentimes isn't even tax deductible. It's advantageous for the lender because they secure the money, and they get the money if the borrower defaults, different from a piggyback loan where the lender takes in all the damages.
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 bearing the cost of PMI?
With the utilization of The Homeowners Protection Act of 1998, on most loans lenders are required to automatically stop the PMI when the principal balance of the loan equals 78 percent of the original loan amount. The law designates that, upon request of the homeowner, the PMI must be released when the principal amount reaches only 80 percent. So, wise home owners can get off the hook sooner than expected.
Considering it can take many years to arrive at the point where the principal is just 20% of the initial amount of the loan, it's necessary to know how your home has increased in value. After all, any appreciation you've accomplished over time counts towards dismissing PMI. So why should you pay it after your loan balance has dropped below the 80% threshold? Your neighborhood might not be adopting the national trends and/or your home may have acquired equity before things simmered down, so even when nationwide trends hint at falling home values, you should realize that real estate is local.
A certified, licensed real estate appraiser can help home owners understand just when their home's equity rises above the 20% point, as it's a tough thing to know. As appraisers, it's our job to understand the market dynamics of our area. At The Appraisal Firm, we're masters at pinpointing value trends in Escondido, San Diego County and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will most often remove the PMI with little trouble. At that 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: