Let Appraisals Plus help you decide if you can eliminate your PMI
When buying a house, a 20% down payment is usually the standard. The lender's liability is oftentimes only the remainder between the home value and the amount remaining on the loan, so the 20% adds a nice buffer against the charges of foreclosure, selling the home again, and typical value variations in the event a purchaser defaults.
During the recent mortgage boom of the mid 2000s, it became common to see lenders commanding down payments of 10, 5 or even 0 percent. A lender is able to handle the additional risk of the small down payment with Private Mortgage Insurance or PMI. PMI guards the lender in case a borrower defaults on the loan and the market price of the home is less than what is owed on the loan.
Since the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and generally isn't even tax deductible, PMI is costly to a borrower. Unlike a piggyback loan where the lender consumes all the losses, PMI is beneficial for the lender because they collect 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 can home owners prevent bearing the cost of PMI?
The Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the original loan amount. Savvy home owners can get off the hook ahead of time. The law designates that, upon request of the homeowner, the PMI must be released when the principal amount equals only 80 percent.
Since it can take many years to get to the point where the principal is only 20% of the initial amount of the loan, it's essential to know how your home has increased in value. After all, any appreciation you've acquired over the years counts towards removing PMI. So what's the reason for paying it after your loan balance has fallen below the 80% threshold? Your neighborhood might not be reflecting the national trends and/or your home might have acquired equity before things settled down, so even when nationwide trends hint at plummeting home values, you should realize that real estate is local.
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 tough thing to know. It's an appraiser's job to know the market dynamics of their area. At Appraisals Plus, we're masters at recognizing value trends in Philadelphia, Philadelphia County and surrounding areas, and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will generally cancel the PMI with little trouble. At which time, the homeowner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: