Have equity in your home? Want a lower payment? An appraisal from James Earp Appraisal Service can help you get rid of your PMI.
When buying a house, a 20% down payment is typically the standard. Because the liability for the lender is often only the difference between the home value and the sum outstanding on the loan, the 20% supplies a nice cushion against the charges of foreclosure, selling the home again, and typical value fluctuationson the chance that a borrower doesn't pay.
During the recent mortgage upturn of the mid 2000s, it became customary to see lenders taking down payments of 10, 5 or even 0 percent. How does a lender endure the added risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI guards the lender if a borrower doesn't pay on the loan and the worth of the home is lower than the balance of the loan.
Since the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and frequently isn't even tax deductible, PMI is costly to a borrower. Unlike a piggyback loan where the lender absorbs all the losses, PMI is lucrative for the lender because they obtain the money, and they get the money 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 home owners can keep from bearing the expense of PMI
The Homeowners Protection Act of 1998 makes the lenders on nearly all loans to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. The law stipulates that, upon request of the home owner, the PMI must be released when the principal amount equals only 80 percent. So, wise homeowners can get off the hook ahead of time.
It can take many years to reach the point where the principal is only 20% of the original loan amount, so it's essential to know how your home has grown in value. After all, any appreciation you've obtained over the years counts towards removing PMI. So why pay it after the balance of your loan has fallen below the 80% threshold? Your neighborhood might not be adhering to the national trends and/or your home might have gained equity before things cooled off, so even when nationwide trends signify plunging home values, you should realize that real estate is local.
The difficult thing for almost all home owners to understand is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can definitely help. It's an appraiser's job to recognize the market dynamics of their area. At James Earp Appraisal Service, we're experts at analyzing value trends in Raleigh, Wake County and surrounding areas, and we know when property values have risen or declined. When faced with figures from an appraiser, the mortgage company will often drop the PMI with little anxiety. At which 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: