Let Daniel Todd Appraisal Services, LLC help you figure out if you can get rid of your PMI
A 20% down payment is typically the standard when purchasing a home. The lender's risk is generally only the difference between the home value and the amount outstanding on the loan, so the 20% supplies a nice buffer against the costs of foreclosure, selling the home again, and natural value fluctuations in the event a purchaser defaults.
During the recent mortgage boom of the last decade, it was customary to see lenders requiring down payments of 10, 5 or even 0 percent. A lender is able to endure the increased risk of the small down payment with Private Mortgage Insurance or PMI. PMI covers the lender in case a borrower is unable to pay on the loan and the market price of the home is less than the balance of the loan.
PMI is pricey to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and oftentimes isn't even tax deductible. Separate from a piggyback loan where the lender takes in all the deficits, PMI is lucrative for the lender because they secure the money, and they receive payment 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 owners prevent bearing the cost of PMI?
The Homeowners Protection Act of 1998 forces the lenders on nearly all loans to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the original loan amount. Savvy homeowners can get off the hook sooner than expected. The law promises that, upon request of the home owner, the PMI must be released when the principal amount reaches only 80 percent.
Considering 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 grown in value. After all, every bit of appreciation you've achieved over the years counts towards abolishing PMI. So why should you pay it after your loan balance has dropped below the 80% mark? Even when nationwide trends indicate decreasing home values, understand that real estate is local. Your neighborhood might not be reflecting the national trends and/or your home could have secured equity before things cooled off.
The difficult thing for almost all home owners to understand is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can surely help. It's an appraiser's job to recognize the market dynamics of their area. At Daniel Todd Appraisal Services, LLC, we know when property values have risen or declined. We're masters at analyzing value trends in Bloomington, Monroe County and surrounding areas. Faced with figures from an appraiser, the mortgage company will often do away with the PMI with little anxiety. At that 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: