Let Appraisals Plus help you determine if you can eliminate your PMI
When buying a house, a 20% down payment is usually the standard. The lender's risk is usually only the difference between the home value and the sum remaining on the loan, so the 20% adds a nice buffer against the charges of foreclosure, selling the home again, and regular value variations in the event a borrower is unable to pay.
During the recent mortgage boom of the mid 2000s, it became common to see lenders commanding down payments of 10, 5 or sometimes 0 percent. A lender is able to endure the added risk of the reduced down payment with Private Mortgage Insurance or PMI. This supplemental policy covers the lender in case a borrower defaults on the loan and the worth of the property is lower than the loan balance.
Because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and frequently isn't even tax deductible, PMI can be costly to a borrower. Separate from a piggyback loan where the lender absorbs all the losses, PMI is money-making for the lender because they acquire the money, and they get paid 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 buyers keep from bearing the expense of PMI?
With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are obligated to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. Savvy home owners can get off the hook a little early. The law designates that, at the request of the homeowner, the PMI must be released when the principal amount reaches just 80 percent.
Because it can take many years to get to the point where the principal is just 20% of the original amount of the loan, it's crucial to know how your home has appreciated in value. After all, all of the appreciation you've obtained over the years counts towards removing PMI. So why pay it after the balance of your loan has dropped below the 80% mark? Your neighborhood might not be following the national trends and/or your home could have secured equity before things settled down, so even when nationwide trends indicate plummeting home values, you should realize that real estate is local.
The hardest thing for most home owners to know is just when their home's equity goes over 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 Appraisals Plus, we're experts at determining value trends in Philadelphia, Philadelphia County and surrounding areas, and we know when property values have risen or declined. Faced with data from an appraiser, the mortgage company will generally do away with the PMI with little trouble. At which 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: