Let Daniel Todd Appraisal Services, LLC help you figure out if you can eliminate your PMI
When purchasing a home, a 20% down payment is typically the standard. Considering the liability for the lender is oftentimes only the remainder between the home value and the amount due on the loan, the 20% supplies a nice cushion against the costs of foreclosure, selling the home again, and typical value fluctuationsin the event a borrower doesn't pay.
The market was accepting down payments as low as 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender manage the increased risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI guards the lender in case a borrower is unable to pay on the loan and the market price of the property is less than the balance of the loan.
PMI is costly to a borrower because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and often isn't even tax deductible. Separate from a piggyback loan where the lender takes in all the damages, PMI is lucrative for the lender because they secure the money, and they get paid 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 buyers can prevent bearing the expense of PMI
With the employment of The Homeowners Protection Act of 1998, on most loans lenders are obligated to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. Smart home owners can get off the hook a little early. The law states that, upon request of the homeowner, the PMI must be dropped when the principal amount reaches just 80 percent.
Considering it can take countless years to reach the point where the principal is only 20% of the initial amount of the loan, it's necessary to know how your home has grown in value. After all, every bit of appreciation you've obtained over time counts towards removing PMI. So what's the reason for paying it after the balance of your loan has fallen below the 80% threshold? Even when nationwide trends forecast declining home values, understand that real estate is local. Your neighborhood might not be minding the national trends and/or your home might have acquired equity before things calmed down.
The hardest thing for almost all homeowners to know is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can certainly help. As appraisers, it's our job to keep up with the market dynamics of our area. At Daniel Todd Appraisal Services, LLC, we know when property values have risen or declined. We're experts at analyzing value trends in Bloomington, Monroe County and surrounding areas. Faced with information from an appraiser, the mortgage company will most often do away with the PMI with little effort. At that time, the homeowner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: