Let The Appraisal Firm help you determine if you can cancel your PMI
A 20% down payment is usually the standard when buying a house. Considering the risk for the lender is oftentimes only the difference between the home value and the amount due on the loan, the 20% supplies a nice buffer against the costs of foreclosure, reselling the home, and regular value fluctuationson the chance that a borrower doesn't pay.
During the recent mortgage boom of the last decade, it became customary to see lenders taking down payments of 10, 5 or often 0 percent. How does a lender endure the added risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI protects the lender in case a borrower defaults on the loan and the value of the property is lower than the balance of the loan.
Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and generally isn't even tax deductible, PMI can be expensive to a borrower. It's lucrative for the lender because they collect the money, and they receive payment if the borrower defaults, different 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 can home buyers refrain from bearing the cost of PMI?
The Homeowners Protection Act of 1998 forces the lenders on nearly all loans to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. The law stipulates that, at the request of the homeowner, the PMI must be abandoned when the principal amount equals just 80 percent. So, wise home owners can get off the hook ahead of time.
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 essential to know how your home has grown in value. After all, all of the appreciation you've obtained over time counts towards removing PMI. So why should you pay it after your loan balance has fallen below the 80% mark? Your neighborhood might not be following the national trends and/or your home might have acquired equity before things simmered down, so even when nationwide trends hint at plunging 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's an appraiser's job to recognize the market dynamics of their area. At The Appraisal Firm, we know when property values have risen or declined. We're experts at analyzing value trends in Escondido, San Diego 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 retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: