Let Abandy & Associates Appraisal Services help you discover if you can get rid of your PMI
When getting a mortgage, a 20% down payment is usually 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% adds a nice cushion against the expenses of foreclosure, reselling the home, and typical value fluctuations in the event a purchaser doesn't pay.
During the recent mortgage boom of the mid 2000s, it became common to see lenders requiring down payments of 10, 5 or sometimes 0 percent. How does a lender handle the added risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI guards the lender if a borrower doesn't pay on the loan and the market price of the home is lower than what is owed on the loan.
Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and generally isn't even tax deductible, PMI can be pricey to a borrower. Unlike a piggyback loan where the lender absorbs all the costs, PMI is money-making for the lender because they collect the money, and they receive payment if the borrower defaults.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How homebuyers can avoid paying PMI
With the employment 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 reaches 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 equals only 80 percent. So, smart homeowners can get off the hook sooner than expected.
Because it can take many years to reach the point where the principal is just 20% of the initial amount of the loan, it's crucial to know how your home has grown in value. After all, all of the appreciation you've accomplished 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% mark? Despite the fact that nationwide trends predict plummeting home values, be aware that real estate is local. Your neighborhood might not be adhering to the national trends and/or your home might have acquired equity before things simmered down.
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 hard thing to know. It is an appraiser's job to recognize the market dynamics of their area. At Abandy & Associates Appraisal Services, we know when property values have risen or declined. We're experts at identifying value trends in Chino Hills, San Bernardino County and surrounding areas. When faced with information from an appraiser, the mortgage company will most often drop the PMI with little anxiety. At that time, the home owner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: