Let Mike Noble Appraisals help you learn if you can eliminate your PMI
A 20% down payment is typically accepted when buying a house. The lender's risk is usually only the remainder between the home value and the amount due on the loan, so the 20% adds a nice buffer against the expenses of foreclosure, selling the home again, and typical value fluctuations on the chance that a borrower doesn't pay.
The market was taking down payments down to 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender handle the added risk of the low down payment? The solution is Private Mortgage Insurance or PMI. This supplementary policy guards the lender if a borrower doesn't pay on the loan and the value of the home is less than the loan balance.
PMI can be pricey to a borrower in that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and oftentimes isn't even tax deductible. It's money-making for the lender because they secure the money, and they get the money if the borrower doesn't pay, separate from a piggyback loan where the lender absorbs all the deficits.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can home buyers avoid bearing the cost of PMI?
The Homeowners Protection Act of 1998 makes the lenders on most loans to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the original loan amount. The law guarantees that, at the request of the home owner, the PMI must be abandoned when the principal amount equals only 80 percent. So, keen homeowners can get off the hook ahead of time.
Considering it can take many years to get to the point where the principal is just 20% of the initial amount borrowed, it's crucial to know how your home has grown in value. After all, every bit of appreciation you've achieved over time counts towards removing PMI. So why should you pay it after your loan balance has dropped below the 80% mark? Despite the fact that nationwide trends predict decreasing home values, be aware that real estate is local. Your neighborhood may not be adopting the national trends and/or your home could have secured equity before things calmed down.
An accredited, licensed real estate appraiser can help homeowners understand just when their home's equity rises above the 20% point, as it's a tough thing to know. As appraisers, it's our job to understand the market dynamics of our area. At Mike Noble Appraisals, we know when property values have risen or declined. We're masters at recognizing value trends in Montgomery, Elmore County and surrounding areas. When faced with information from an appraiser, the mortgage company will generally do away with the PMI with little effort. 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: