Let AC Realty & Appraisals help you determine if you can eliminate your PMI
A 20% down payment is usually accepted when buying a house. Considering the risk for the lender is oftentimes only the difference between the home value and the amount outstanding on the loan, the 20% adds a nice buffer against the expenses of foreclosure, selling the home again, and typical value variationsin the event a purchaser is unable to pay.
Lenders were accepting down payments down to 10, 5 and often 0 percent during the mortgage boom of the last decade. A lender is able to handle the added risk of the minimal down payment with Private Mortgage Insurance or PMI. PMI covers the lender if a borrower is unable to pay on the loan and the market price of the home is less than the loan balance.
Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and frequently isn't even tax deductible, PMI is costly to a borrower. It's beneficial for the lender because they collect the money, and they get the money if the borrower defaults, opposite from a piggyback loan where the lender consumes all the costs.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can home owners avoid bearing the expense of PMI?
The Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically cease the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. The law guarantees that, upon request of the homeowner, the PMI must be dropped when the principal amount equals just 80 percent. So, smart homeowners can get off the hook a little earlier.
It can take many years to reach the point where the principal is only 20% of the original amount of the loan, so it's crucial to know how your home has grown in value. After all, any appreciation you've obtained over time counts towards removing PMI. So what's the reason for paying it after the balance of your loan has fallen below the 80% threshold? Your neighborhood might not be following the national trends and/or your home may have acquired equity before things cooled off, so even when nationwide trends predict plummeting home values, you should understand that real estate is local.
The toughest thing for most home owners to know is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can certainly help. It is an appraiser's job to recognize the market dynamics of their area. At AC Realty & Appraisals, we know when property values have risen or declined. We're masters at analyzing value trends in Winter, Sawyer County and surrounding areas. Faced with information from an appraiser, the mortgage company will most often remove the PMI with little anxiety. At which time, the home owner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: