Let Daniel Todd Appraisal Services, LLC help you decide if you can eliminate your PMI
A 20% down payment is usually the standard when buying a house. The lender's risk 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 costs of foreclosure, selling the home again, and regular value changes in the event a borrower doesn't pay.
During the recent mortgage boom of the last decade, it became common to see lenders taking down payments of 10, 5 or sometimes 0 percent. A lender is able to endure the additional risk of the reduced down payment with Private Mortgage Insurance or PMI. This additional policy guards the lender in the event a borrower defaults on the loan and the value of the house is lower than the loan balance.
PMI can be expensive to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and often isn't even tax deductible. Unlike a piggyback loan where the lender takes in all the deficits, PMI is lucrative for the lender because they obtain 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 avoid bearing the cost of PMI?
With the utilization of The Homeowners Protection Act of 1998, on nearly all loans lenders are obligated to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. The law guarantees that, at the request of the home owner, the PMI must be dropped when the principal amount reaches just 80 percent. So, keen home owners can get off the hook sooner than expected.
It can take many years to arrive at the point where the principal is just 20% of the initial amount of the loan, so it's necessary to know how your home has increased in value. After all, every bit of appreciation you've achieved over time counts towards dismissing PMI. So what's the reason for paying it after your loan balance has fallen below the 80% mark? Despite the fact that nationwide trends hint at declining home values, understand that real estate is local. Your neighborhood may not be adhering to the national trends and/or your home might have acquired equity before things settled down.
The difficult thing for most homeowners to know is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can definitely help. It is an appraiser's job to know the market dynamics of their area. At Daniel Todd Appraisal Services, LLC, we know when property values have risen or declined. We're experts at recognizing value trends in Bloomington, Monroe County and surrounding areas. When faced with data from an appraiser, the mortgage company will generally cancel the PMI with little effort. At which time, the homeowner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: