Let ASAP Appraisal Services, Inc. help you determine if you can eliminate your PMI
When buying a house, a 20% down payment is usually the standard. Since the risk for the lender is generally only the remainder between the home value and the amount outstanding on the loan, the 20% adds a nice buffer against the charges of foreclosure, selling the home again, and regular value variationson the chance that a borrower doesn't pay.
During the recent mortgage upturn of the mid 2000s, it became customary to see lenders commanding down payments of 10, 5 or sometimes 0 percent. How does a lender endure the additional risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI protects the lender in the event a borrower defaults on the loan and the worth of the property is lower than what the borrower still owes on the loan.
PMI is costly to a borrower in that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and often isn't even tax deductible. Separate from a piggyback loan where the lender absorbs all the damages, PMI is profitable for the lender because they obtain the money, and they get the money 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 a home buyer refrain from bearing the expense of PMI?
The Homeowners Protection Act of 1998 obligates the lenders on most loans to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the original loan amount. Smart homeowners can get off the hook beforehand. The law promises that, upon request of the home owner, the PMI must be released when the principal amount reaches only 80 percent.
Because it can take countless years to reach the point where the principal is only 20% of the initial amount of the loan, it's crucial to know how your home has increased in value. After all, all of the appreciation you've achieved over the years counts towards removing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% mark? Even when nationwide trends predict plunging home values, understand that real estate is local. Your neighborhood might not be minding the national trends and/or your home may have secured equity before things simmered down.
The difficult thing for many homeowners to know is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can surely help. It's an appraiser's job to recognize the market dynamics of their area. At ASAP Appraisal Services, Inc., we're masters at determining value trends in Mesa, Maricopa County and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will generally drop 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: