Let Edwards Appraisal Service, Inc. help you decide 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 usually only the remainder between the home value and the amount outstanding on the loan, so the 20% supplies a nice buffer against the costs of foreclosure, reselling the home, and regular value fluctuations on the chance that a purchaser doesn't pay.
Banks were taking down payments as low as 10, 5 and even 0 percent during the mortgage boom of the last decade. How does a lender endure the additional risk of the low down payment? The solution is Private Mortgage Insurance or PMI. This supplemental policy takes care of the lender in the event a borrower defaults on the loan and the market price of the home is less than the loan balance.
PMI can be pricey to a borrower because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and oftentimes isn't even tax deductible. Unlike a piggyback loan where the lender takes in all the losses, PMI is favorable for the lender because they obtain 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 can a home buyer avoid paying PMI?
The Homeowners Protection Act of 1998 obligates the lenders on most loans to automatically stop the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. The law states that, at the request of the homeowner, the PMI must be abandoned when the principal amount reaches just 80 percent. So, acute homeowners can get off the hook a little early.
It can take many years to arrive at the point where the principal is just 20% of the original amount of the loan, so it's crucial to know how your home has increased in value. After all, any appreciation you've gained over the years counts towards removing PMI. So why pay it after your loan balance has dropped below the 80% mark? Your neighborhood may not be reflecting the national trends and/or your home may have acquired equity before things settled down, so even when nationwide trends predict declining home values, you should understand 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 is an appraiser's job to know the market dynamics of their area. At Edwards Appraisal Service, Inc., we're experts at recognizing value trends in Goldsboro, Wayne County and surrounding areas, and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will often do away with 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:
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