Let Pierce Appraisal help you learn if you can eliminate your PMI
It's generally known that a 20% down payment is accepted when getting a mortgage. The lender's risk is usually only the difference between the home value and the sum remaining on the loan, so the 20% supplies a nice cushion against the costs of foreclosure, selling the home again, and natural value variations in the event a borrower is unable to pay.
During the recent mortgage boom of the mid 2000s, it became customary to see lenders taking down payments of 10, 5 or even 0 percent. A lender is able to endure the additional risk of the small down payment with Private Mortgage Insurance or PMI. PMI guards the lender if a borrower doesn't pay on the loan and the worth of the house is lower than the loan balance.
Since the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and often isn't even tax deductible, PMI is costly to a borrower. It's lucrative for the lender because they acquire the money, and they get the money if the borrower defaults, opposite from a piggyback loan where the lender consumes 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 home buyers refrain from bearing the cost of PMI?
The Homeowners Protection Act of 1998 requires the lenders on most loans to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law guarantees that, upon request of the home owner, the PMI must be released when the principal amount equals just 80 percent. So, acute homeowners can get off the hook a little earlier.
It can take countless years to get to the point where the principal is only 20% of the initial amount of the loan, so it's important to know how your home has increased in value. After all, any appreciation you've accomplished over the years counts towards dismissing PMI. So why pay it after your loan balance has fallen below the 80% mark? Even when nationwide trends predict plunging home values, be aware that real estate is local. Your neighborhood might not be minding the national trends and/or your home could have acquired equity before things cooled off.
The difficult thing for many home owners to know is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can surely help. It's an appraiser's job to recognize the market dynamics of their area. At Pierce Appraisal, we know when property values have risen or declined. We're masters at determining value trends in Gering, Scotts Bluff County and surrounding areas. Faced with data from an appraiser, the mortgage company will usually drop the PMI with little anxiety. At which time, the home owner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: