Let ASAP Appraisal Services, Inc. help you learn if you can eliminate your PMI
A 20% down payment is typically accepted when purchasing a home. The lender's liability is often only the remainder between the home value and the amount outstanding on the loan, so the 20% supplies a nice buffer against the charges of foreclosure, selling the home again, and regular value fluctuations in the event a borrower defaults.
The market was working with down payments down to 10, 5 and even 0 percent during the mortgage boom of the mid 2000s. How does a lender handle the added risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI takes care of the lender if a borrower is unable to pay on the loan and the value of the property is less than the balance of the loan.
Since the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and many times isn't even tax deductible, PMI can be expensive to a borrower. Different from a piggyback loan where the lender absorbs all the losses, PMI is profitable for the lender because they acquire the money, and they get paid if the borrower defaults.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can home buyers refrain from bearing the cost of PMI?
The Homeowners Protection Act of 1998 forces the lenders on most loans to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the original loan amount. The law stipulates 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 earlier.
Because it can take countless years to reach the point where the principal is just 20% of the initial loan amount, it's important to know how your home has grown in value. After all, all of the appreciation you've gained over time counts towards removing PMI. So why should you pay it after the balance of your loan has dropped below the 80% mark? Despite the fact that nationwide trends signify plunging home values, realize that real estate is local. Your neighborhood may not be heeding the national trends and/or your home may have acquired equity before things calmed down.
An accredited, licensed real estate appraiser can help homeowners understand just when their home's equity rises above the 20% point, as it's a tough thing to know. It's an appraiser's job to keep up with the market dynamics of their area. At ASAP Appraisal Services, Inc., we're experts at pinpointing value trends in Mesa, Maricopa County and surrounding areas, and we know when property values have risen or declined. Faced with data from an appraiser, the mortgage company will often remove the PMI with little trouble. At that 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: