Have equity in your home? Want a lower payment? An appraisal from Accurate Valuation LLC can help you get rid of your PMI.
A 20% down payment is typically the standard when purchasing a home. The lender's risk is usually only the remainder between the home value and the sum outstanding on the loan, so the 20% provides a nice buffer against the charges of foreclosure, reselling the home, and natural value variations in the event a purchaser doesn't pay.
During the recent mortgage upturn of the mid 2000s, it became widespread to see lenders requiring down payments of 10, 5 or often 0 percent. How does a lender handle the added risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI takes care of the lender if a borrower doesn't pay on the loan and the value of the home is lower than what the borrower still owes on the loan.
Since the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and frequently isn't even tax deductible, PMI is pricey to a borrower. Separate from a piggyback loan where the lender takes in all the costs, PMI is beneficial for the lender because they obtain the money, and they get paid if the borrower doesn't pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can home buyers avoid paying PMI?
With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are required to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the original loan amount. The law promises that, upon request of the homeowner, the PMI must be dropped when the principal amount reaches just 80 percent. So, wise home owners can get off the hook sooner than expected.
Since it can take countless years to arrive at the point where the principal is only 20% of the original amount of the loan, it's necessary to know how your home has appreciated in value. After all, all of the appreciation you've achieved over time counts towards abolishing PMI. So why should you pay it after the balance of your loan has dropped below the 80% mark? Your neighborhood may not be reflecting the national trends and/or your home may have gained equity before things settled down, so even when nationwide trends forecast decreasing home values, you should realize that real estate is local.
A certified, licensed real estate appraiser can help homeowners understand just when their home's equity goes over the 20% point, as it's a hard 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 masters at recognizing value trends in Wellington, Larimer County and surrounding areas. When faced with data from an appraiser, the mortgage company will often drop the PMI with little anxiety. At that time, the home owner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: