James Earp Appraisal Service can help you remove your Private Mortgage Insurance
It's largely understood that a 20% down payment is accepted when purchasing a home. Since the risk for the lender is often only the remainder between the home value and the sum remaining on the loan, the 20% adds a nice cushion against the costs of foreclosure, selling the home again, and natural value variationsin the event a purchaser defaults.
During the recent mortgage boom of the last decade, it became widespread to see lenders commanding down payments of 10, 5 or sometimes 0 percent. How does a lender handle the increased risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI protects the lender if a borrower is unable to pay on the loan and the value of the home is less than what is owed on the loan.
Because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and often isn't even tax deductible, PMI can be expensive to a borrower. Opposite from a piggyback loan where the lender takes in all the deficits, PMI is beneficial for the lender because they secure the money, and they receive payment 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 homebuyers can refrain from bearing the cost of PMI
With the utilization of The Homeowners Protection Act of 1998, on most loans lenders are required to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. Acute homeowners can get off the hook beforehand. The law states that, upon request of the home owner, the PMI must be abandoned when the principal amount equals just 80 percent.
Considering it can take many years to reach the point where the principal is only 20% of the initial loan amount, it's essential to know how your home has increased in value. After all, any appreciation you've obtained over the years counts towards removing PMI. So why should you pay it after your loan balance has fallen below the 80% threshold? Even when nationwide trends forecast falling home values, understand that real estate is local. Your neighborhood may not be minding the national trends and/or your home could have acquired equity before things cooled off.
A certified, licensed real estate appraiser can help home owners understand just when their home's equity goes over the 20% point, as it's a hard thing to know. It's an appraiser's job to understand the market dynamics of their area. At James Earp Appraisal Service, we know when property values have risen or declined. We're masters at recognizing value trends in Raleigh, Wake County and surrounding areas. Faced with data from an appraiser, the mortgage company will most often eliminate the PMI with little trouble. At that time, the homeowner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: