Mike's Appraisals can help you remove your Private Mortgage Insurance
When buying a house, a 20% down payment is typically the standard. The lender's risk is usually only the difference between the home value and the amount remaining on the loan, so the 20% adds a nice buffer against the costs of foreclosure, selling the home again, and typical value changes on the chance that a borrower doesn't pay.
During the recent mortgage boom of the mid 2000s, it was common to see lenders taking down payments of 10, 5 or often 0 percent. How does a lender handle the increased risk of the small down payment? The solution is Private Mortgage Insurance or PMI. This supplementary plan guards the lender in case a borrower defaults on the loan and the worth of the home is less than what the borrower still owes on the loan.
Since the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and frequently isn't even tax deductible, PMI is pricey to a borrower. It's lucrative for the lender because they acquire the money, and they get the money if the borrower defaults, separate from a piggyback loan where the lender absorbs all the deficits.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can buyers prevent paying PMI?
The Homeowners Protection Act of 1998 requires 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. Keen homeowners can get off the hook a little early. The law guarantees that, upon request of the home owner, the PMI must be dropped when the principal amount equals only 80 percent.
It can take many years to get to the point where the principal is just 20% of the initial amount borrowed, so it's essential to know how your home has increased in value. After all, any appreciation you've obtained over time counts towards dismissing PMI. So what's the reason for paying it after the balance of your loan has fallen below the 80% threshold? Your neighborhood might not be following the national trends and/or your home might have acquired equity before things settled down, so even when nationwide trends hint at plunging home values, you should understand that real estate is local.
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 difficult thing to know. It's an appraiser's job to know the market dynamics of their area. At Mike's Appraisals, we're experts at pinpointing value trends in Garden Grove, Orange County and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will most often remove the PMI with little trouble. At that time, the homeowner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: