Let Accurate Valuation LLC help you figure out if you can get rid of your PMI
A 20% down payment is usually the standard when getting a mortgage. The lender's liability is often only the remainder between the home value and the sum outstanding on the loan, so the 20% provides a nice cushion against the expenses of foreclosure, selling the home again, and typical value fluctuations on the chance that a borrower doesn't pay.
Banks were accepting down payments as low as 10, 5 and even 0 percent during the mortgage boom of the last decade. How does a lender endure the additional risk of the low down payment? The solution is Private Mortgage Insurance or PMI. This additional plan guards the lender if a borrower defaults on the loan and the value of the property is less than what is owed on the loan.
Because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and often isn't even tax deductible, PMI can be expensive to a borrower. It's advantageous for the lender because they obtain the money, and they get the money if the borrower doesn't pay, unlike 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 homebuyers refrain from bearing the expense of PMI?
The Homeowners Protection Act of 1998 requires the lenders on most loans to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. The law pledges that, upon request of the home owner, the PMI must be released when the principal amount reaches only 80 percent. So, smart home owners can get off the hook a little earlier.
It can take many years to arrive at the point where the principal is just 20% of the initial amount borrowed, so it's necessary to know how your home has appreciated in value. After all, all of the appreciation you've achieved over the years counts towards abolishing PMI. So why should you pay it after your loan balance has fallen below the 80% mark? Your neighborhood may not be minding the national trends and/or your home may have acquired equity before things calmed down, so even when nationwide trends signify plunging home values, you should realize that real estate is local.
The toughest thing for many homeowners to understand is just when their home's equity rises above the 20% point. A certified, licensed real estate appraiser can definitely help. As appraisers, it's our job to recognize the market dynamics of our area. At Accurate Valuation LLC, we're experts at pinpointing value trends in Wellington, Larimer County and surrounding areas, and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will most often drop the PMI with little anxiety. 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: