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 getting a mortgage, a 20% down payment is typically the standard. Because the liability for the lender is generally only the remainder between the home value and the sum outstanding on the loan, the 20% provides a nice buffer against the expenses of foreclosure, selling the home again, and natural value fluctuationson the chance that a borrower doesn't pay.
Lenders were working with down payments down to 10, 5 and even 0 percent during the mortgage boom of the last decade. How does a lender endure the additional risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI takes care of the lender in the event a borrower is unable to pay on the loan and the market price of the property is lower than the loan balance.
Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and often isn't even tax deductible, PMI is costly to a borrower. Unlike a piggyback loan where the lender takes in all the losses, PMI is advantageous for the lender because they secure 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 home owners prevent bearing the expense of PMI?
With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are forced to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. The law pledges that, at the request of the homeowner, the PMI must be abandoned when the principal amount equals just 80 percent. So, wise homeowners can get off the hook sooner than expected.
It can take many years to arrive at the point where the principal is only 20% of the original loan amount, so it's necessary to know how your home has grown in value. After all, every bit of appreciation you've achieved 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 reflecting the national trends and/or your home may have acquired equity before things simmered down, so even when nationwide trends forecast decreasing home values, you should understand that real estate is local.
The difficult thing for many home owners to understand is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can surely help. It's an appraiser's job to know the market dynamics of their area. At James Earp Appraisal Service, we're masters 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 trouble. 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: