Have equity in your home? Want a lower payment? An appraisal from Baker Appraisal Services, Inc. can help you get rid of your PMI.
It's widely inferred that a 20% down payment is accepted when buying a house. The lender's liability is usually only the remainder between the home value and the sum remaining on the loan, so the 20% adds a nice cushion against the costs of foreclosure, selling the home again, and regular value changes in the event a purchaser doesn't pay.
During the recent mortgage boom of the mid 2000s, it was widespread to see lenders requiring down payments of 10, 5 or often 0 percent. How does a lender handle the additional risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI protects the lender in the event a borrower is unable to pay on the loan and the value of the house is lower than what is owed on the loan.
PMI can be pricey to a borrower because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and oftentimes isn't even tax deductible. Different from a piggyback loan where the lender absorbs all the damages, PMI is profitable for the lender because they secure the money, and they get paid if the borrower doesn't pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a home owner refrain from bearing the expense of PMI?
The Homeowners Protection Act of 1998 makes the lenders on nearly all loans to automatically stop the PMI when the principal balance of the loan equals 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 just 80 percent. So, acute home owners can get off the hook ahead of time.
It can take countless years to arrive at the point where the principal is just 20% of the original loan amount, so it's crucial to know how your home has grown in value. After all, any appreciation you've achieved over time counts towards abolishing PMI. So what's the reason for paying it after your loan balance has fallen below the 80% threshold? Despite the fact that nationwide trends hint at plummeting home values, be aware that real estate is local. Your neighborhood might not be following the national trends and/or your home might have secured equity before things calmed down.
The toughest thing for almost all home owners to know is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can certainly help. It is an appraiser's job to keep up with the market dynamics of their area. At Baker Appraisal Services, Inc., we're experts at pinpointing value trends in Camden, Kent County and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will usually cancel the PMI with little effort. At that 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: