Appraisal First, Inc. can help you remove your Private Mortgage Insurance
When purchasing a home, a 20% down payment is usually the standard. The lender's risk is generally only the difference between the home value and the sum due on the loan, so the 20% provides a nice cushion against the costs of foreclosure, selling the home again, and regular value fluctuations on the chance that a borrower doesn't pay.
During the recent mortgage boom of the mid 2000s, it became customary to see lenders commanding down payments of 10, 5 or even 0 percent. How does a lender handle the increased risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI covers the lender if a borrower is unable to pay on the loan and the value of the property is less than what the borrower still owes on the loan.
Because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and many times isn't even tax deductible, PMI can be expensive to a borrower. Different from a piggyback loan where the lender absorbs all the costs, PMI is money-making for the lender because they obtain the money, and they get the money 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 can a home buyer refrain from paying PMI?
The Homeowners Protection Act of 1998 requires the lenders on most loans to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. The law guarantees that, at the request of the homeowner, the PMI must be abandoned when the principal amount equals only 80 percent. So, acute home owners can get off the hook ahead of time.
It can take many years to get to the point where the principal is just 20% of the original loan amount, so it's important to know how your home has grown in value. After all, all of the appreciation you've gained over the years counts towards abolishing PMI. So what's the reason for paying it after your loan balance has fallen below the 80% threshold? Even when nationwide trends signify falling home values, realize that real estate is local. Your neighborhood may not be following the national trends and/or your home might have gained equity before things cooled off.
The hardest thing for most homeowners to understand is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can definitely help. It is an appraiser's job to recognize the market dynamics of their area. At Appraisal First, Inc., we know when property values have risen or declined. We're masters at determining value trends in Springfield, Greene County and surrounding areas. When faced with information from an appraiser, the mortgage company will usually remove the PMI with little anxiety. At that time, the homeowner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: