Let Daniel Todd Appraisal Services, LLC help you discover if you can cancel your PMI
When purchasing a home, a 20% down payment is typically the standard. The lender's liability is oftentimes only the remainder between the home value and the amount outstanding on the loan, so the 20% supplies a nice buffer against the expenses of foreclosure, selling the home again, and natural value changes on the chance that a borrower defaults.
During the recent mortgage boom of the mid 2000s, it became customary to see lenders taking down payments of 10, 5 or sometimes 0 percent. How does a lender endure the additional risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI protects the lender in case a borrower is unable to pay on the loan and the worth of the house is lower than the balance of the loan.
Since the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and oftentimes isn't even tax deductible, PMI can be expensive to a borrower. It's profitable for the lender because they acquire the money, and they get paid if the borrower doesn't pay, different from a piggyback loan where the lender takes in all the losses.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a buyer refrain from bearing the expense of PMI?
The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. The law states that, at the request of the home owner, the PMI must be dropped when the principal amount reaches just 80 percent. So, savvy homeowners can get off the hook ahead of time.
Because it can take countless years to arrive at the point where the principal is only 20% of the original amount borrowed, it's necessary to know how your home has grown in value. After all, all of the appreciation you've accomplished over the years counts towards removing PMI. So why should you pay 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 might not be minding the national trends and/or your home may have secured equity before things calmed down.
An accredited, licensed real estate appraiser can help home owners understand just when their home's equity goes over the 20% point, as it's a hard thing to know. It's 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 masters at recognizing value trends in Bloomington, Monroe County and surrounding areas. Faced with figures from an appraiser, the mortgage company will often drop the PMI with little trouble. At which 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: