Let Accurate Valuation LLC help you determine if you can eliminate your PMI
When getting a mortgage, a 20% down payment is typically 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% provides a nice cushion against the expenses of foreclosure, selling the home again, and regular value variations on the chance that a purchaser is unable to pay.
The market was taking down payments down to 10, 5 and even 0 percent in the peak of last decade's mortgage boom. How does a lender manage the increased risk of the low down payment? The solution is Private Mortgage Insurance or PMI. This additional plan guards the lender in case a borrower defaults on the loan and the market price of the property is less than what the borrower still owes on the loan.
Because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and oftentimes isn't even tax deductible, PMI can be costly to a borrower. It's lucrative for the lender because they obtain the money, and they get the money if the borrower defaults, unlike a piggyback loan where the lender absorbs all the losses.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a homebuyer avoid bearing the cost of PMI?
The Homeowners Protection Act of 1998 obligates the lenders on most loans to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the original loan amount. The law designates that, upon request of the home owner, the PMI must be released when the principal amount reaches only 80 percent. So, keen homeowners can get off the hook a little earlier.
Since it can take many years to reach the point where the principal is only 20% of the initial amount of the loan, it's important to know how your home has appreciated in value. After all, all of the appreciation you've obtained over time counts towards abolishing PMI. So why should you pay it after the balance of your loan has fallen below the 80% mark? Despite the fact that nationwide trends hint at decreasing home values, understand that real estate is local. Your neighborhood might not be following the national trends and/or your home could have acquired equity before things settled down.
A certified, licensed real estate appraiser can help home owners 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 understand the market dynamics of their area. At Accurate Valuation LLC, we know when property values have risen or declined. We're experts at pinpointing value trends in Wellington, Larimer County and surrounding areas. When faced with figures from an appraiser, the mortgage company will generally 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: