Have equity in your home? Want a lower payment? An appraisal from Appraisals Plus can help you get rid of your PMI.
A 20% down payment is typically accepted when buying a house. The lender's liability is oftentimes only the difference 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 regular value fluctuations in the event a purchaser defaults.
During the recent mortgage upturn of the mid 2000s, it became customary to see lenders commanding down payments of 10, 5 or even 0 percent. A lender is able to manage the additional risk of the low down payment with Private Mortgage Insurance or PMI. PMI protects the lender in the event a borrower is unable to pay on the loan and the worth of the property is less than the balance of the loan.
PMI is pricey to a borrower in that the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and many times isn't even tax deductible. It's money-making for the lender because they acquire the money, and they get paid if the borrower doesn't pay, unlike 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 homeowners can keep from bearing the cost of PMI
With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are forced to automatically cease the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. The law states that, upon request of the home owner, the PMI must be abandoned when the principal amount reaches only 80 percent. So, keen homeowners can get off the hook a little earlier.
Because it can take countless years to get to the point where the principal is only 20% of the initial amount borrowed, it's crucial to know how your home has increased in value. After all, all of the appreciation you've acquired over the years counts towards dismissing PMI. So why pay it after your loan balance has dropped below the 80% mark? Even when nationwide trends signify falling home values, be aware that real estate is local. Your neighborhood might not be reflecting the national trends and/or your home could have acquired equity before things simmered down.
The difficult thing for most home owners to understand is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can certainly help. As appraisers, it's our job to keep up with the market dynamics of our area. At Appraisals Plus, we're masters at pinpointing value trends in Philadelphia, Philadelphia County and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will usually do away with the PMI with little effort. At which time, the home owner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: