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 usually the standard when getting a mortgage. The lender's liability is generally only the difference between the home value and the sum outstanding on the loan, so the 20% adds a nice cushion against the charges of foreclosure, reselling the home, and natural value fluctuations on the chance that a borrower doesn't pay.
During the recent mortgage upturn of the last decade, it was widespread to see lenders taking down payments of 10, 5 or even 0 percent. A lender is able to endure the additional risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI covers the lender if a borrower defaults on the loan and the value of the property is lower than what is owed on the loan.
Because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and frequently isn't even tax deductible, PMI can be expensive to a borrower. Different from a piggyback loan where the lender takes in all the costs, PMI is money-making for the lender because they secure the money, and they get the money if the borrower is unable to pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How homebuyers can prevent paying PMI
The Homeowners Protection Act of 1998 forces the lenders on nearly all loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Wise home owners can get off the hook sooner than expected. The law stipulates that, at the request of the home owner, the PMI must be abandoned when the principal amount equals just 80 percent.
It can take countless years to reach 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 acquired over the years counts towards abolishing PMI. So why pay it after your loan balance has fallen below the 80% mark? Despite the fact that nationwide trends hint at declining home values, realize that real estate is local. Your neighborhood may not be following the national trends and/or your home might have gained equity before things settled down.
An accredited, licensed real estate appraiser can help homeowners understand just when their home's equity goes over the 20% point, as it's a difficult thing to know. It is an appraiser's job to recognize the market dynamics of their area. At Appraisals Plus, we know when property values have risen or declined. We're experts at determining value trends in Philadelphia, Philadelphia County and surrounding areas. Faced with information from an appraiser, the mortgage company will often drop the PMI with little trouble. At which time, the home owner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: