Have equity in your home? Want a lower payment? An appraisal from Preferred Appraisers, Inc. can help you get rid of your PMI.
It's typically understood that a 20% down payment is the standard when purchasing a home. The lender's risk is usually only the remainder between the home value and the sum outstanding on the loan, so the 20% provides a nice cushion against the costs of foreclosure, reselling the home, and regular value fluctuations in the event a borrower doesn't pay.
During the recent mortgage upturn of the last decade, it became common to see lenders taking down payments of 10, 5 or sometimes 0 percent. How does a lender endure the additional risk of the low down payment? The answer is Private Mortgage Insurance or PMI. This supplementary plan covers the lender if a borrower is unable to pay on the loan and the market price of the home is less than what the borrower still owes on the loan.
Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and often isn't even tax deductible, PMI is costly to a borrower. It's favorable for the lender because they secure the money, and they get paid if the borrower doesn't pay, unlike a piggyback loan where the lender takes in all the damages.
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 keep from bearing the expense of PMI?
With the utilization of The Homeowners Protection Act of 1998, on most loans lenders are required to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. Savvy home owners can get off the hook beforehand. The law pledges that, at the request of the homeowner, the PMI must be abandoned when the principal amount equals only 80 percent.
Since it can take countless years to get to the point where the principal is just 20% of the original loan amount, it's essential to know how your home has increased in value. After all, all of the appreciation you've achieved over the years counts towards dismissing PMI. So why should you pay it after your loan balance has dropped below the 80% mark? Despite the fact that nationwide trends indicate plummeting home values, be aware that real estate is local. Your neighborhood may not be minding the national trends and/or your home could have secured equity before things calmed down.
An accredited, licensed real estate appraiser can help home owners understand just when their home's equity rises above the 20% point, as it's a difficult thing to know. As appraisers, it's our job to recognize the market dynamics of our area. At Preferred Appraisers, Inc., Frederick R. Giebel, Jr. IFA, is an expert at recognizing value trends in Sewell, Gloucester, Camden, Salem, Burlington and Cumberland Counties, and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will often remove the PMI with little anxiety. At which time, you can delight in the savings from that point on.
If you want to learn more about PMI and the Homeowners Protection Act? Click this link: