Let Edwards Appraisal Service, Inc. help you determine if you can get rid of your PMI
When purchasing a home, a 20% down payment is usually the standard. The lender's risk is oftentimes only the difference between the home value and the sum outstanding on the loan, so the 20% provides a nice cushion against the costs of foreclosure, reselling the home, and natural value fluctuations on the chance that a purchaser is unable to pay.
Banks were taking down payments down to 10, 5 and often 0 percent during the mortgage boom of the last decade. How does a lender handle the additional risk of the small down payment? The solution is Private Mortgage Insurance or PMI. This added policy covers the lender in case a borrower doesn't pay on the loan and the value of the home is lower than the loan balance.
Since the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and many times isn't even tax deductible, PMI can be costly to a borrower. It's lucrative for the lender because they collect the money, and they get paid if the borrower defaults, 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 homebuyers can refrain from bearing the cost of PMI
The Homeowners Protection Act of 1998 makes the lenders on nearly all loans to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. Savvy home owners can get off the hook ahead of time. The law stipulates that, upon request of the homeowner, the PMI must be released when the principal amount equals only 80 percent.
Because it can take countless years to get to the point where the principal is just 20% of the original amount borrowed, it's necessary to know how your home has increased in value. After all, all of the appreciation you've accomplished over the years counts towards removing PMI. So what's the reason for paying it after the balance of your loan has fallen below the 80% mark? Your neighborhood may not be following the national trends and/or your home could have acquired equity before things cooled off, so even when nationwide trends forecast falling home values, you should understand that real estate is local.
The difficult thing for almost all homeowners to understand is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can surely help. As appraisers, it's our job to know the market dynamics of our area. At Edwards Appraisal Service, Inc., we know when property values have risen or declined. We're masters at pinpointing value trends in Goldsboro, Wayne County and surrounding areas. When faced with data from an appraiser, the mortgage company will most often do away with the PMI with little trouble. At which time, the homeowner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link:
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