Let Daniel Todd Appraisal Services, LLC help you decide if you can get rid of your PMI
A 20% down payment is typically accepted when purchasing a home. The lender's liability is generally only the remainder between the home value and the sum outstanding on the loan, so the 20% provides a nice buffer against the expenses of foreclosure, selling the home again, and typical value changes in the event a borrower defaults.
Lenders were accepting down payments as low as 10, 5 and often 0 percent in the peak of last decade's mortgage boom. A lender is able to endure the increased risk of the reduced down payment with Private Mortgage Insurance or PMI. PMI takes care of the lender in case a borrower doesn't pay on the loan and the value of the property is less than the loan balance.
Because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and generally isn't even tax deductible, PMI can be expensive to a borrower. Unlike a piggyback loan where the lender consumes all the deficits, PMI is advantageous for the lender because they collect 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 homeowners can refrain from bearing the cost of PMI
With the implementation of The Homeowners Protection Act of 1998, on nearly all loans lenders are forced to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. Wise home owners can get off the hook sooner than expected. The law promises that, at the request of the home owner, the PMI must be released when the principal amount equals just 80 percent.
It can take countless years to arrive at the point where the principal is only 20% of the original loan amount, so it's crucial to know how your home has increased in value. After all, every bit of appreciation you've achieved over the years counts towards removing PMI. So why pay it after the balance of your loan has fallen below the 80% mark? Your neighborhood might not be minding the national trends and/or your home might have acquired equity before things cooled off, so even when nationwide trends indicate decreasing home values, you should understand that real estate is local.
The hardest thing for almost all homeowners to know is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can certainly help. It is an appraiser's job to keep up with 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 information from an appraiser, the mortgage company will often cancel the PMI with little trouble. At that time, the home owner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: