Have equity in your home? Want a lower payment? An appraisal from Daniel Todd Appraisal Services, LLC can help you get rid of your PMI.
It's widely known that a 20% down payment is common when buying a house. The lender's liability is generally only the difference between the home value and the sum remaining on the loan, so the 20% adds a nice cushion against the costs of foreclosure, reselling the home, and regular value fluctuations in the event a purchaser defaults.
The market was accepting down payments as low as 10, 5 and often 0 percent during the mortgage boom of the last decade. How does a lender manage the additional risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI takes care of the lender in the event a borrower defaults on the loan and the value of the house is lower than the balance of the loan.
Since the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and frequently isn't even tax deductible, PMI can be pricey to a borrower. Unlike a piggyback loan where the lender consumes all the damages, PMI is beneficial for the lender because they acquire the money, and they receive payment 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 can a home buyer avoid bearing the cost of PMI?
The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. The law pledges that, upon request of the homeowner, the PMI must be dropped when the principal amount reaches just 80 percent. So, savvy home owners can get off the hook sooner than expected.
It can take many years to get to the point where the principal is just 20% of the original amount borrowed, so it's necessary to know how your home has increased in value. After all, every bit of appreciation you've accomplished over time counts towards removing PMI. So why pay it after the balance of your loan has fallen below the 80% threshold? Your neighborhood may not be following the national trends and/or your home may have secured equity before things cooled off, so even when nationwide trends indicate decreasing home values, you should realize that real estate is local.
The hardest thing for many home owners to know is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can definitely 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 experts at identifying value trends in Bloomington, Monroe County and surrounding areas. Faced with information from an appraiser, the mortgage company will most often eliminate 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: