Have equity in your home? Want a lower payment? An appraisal from Floyd Appraisal Works can help you get rid of your PMI.
When purchasing a home, a 20% down payment is usually the standard. The lender's liability is often only the remainder between the home value and the sum outstanding on the loan, so the 20% adds a nice cushion against the costs of foreclosure, reselling the home, and regular value changes on the chance that a purchaser is unable to pay.
During the recent mortgage upturn of the mid 2000s, it was widespread to see lenders taking down payments of 10, 5 or sometimes 0 percent. A lender is able to manage the increased risk of the minimal down payment with Private Mortgage Insurance or PMI. PMI guards the lender in case a borrower doesn't pay on the loan and the market price of the home is lower than what the borrower still owes on the loan.
PMI can be costly to a borrower in that the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and many times isn't even tax deductible. It's lucrative for the lender because they obtain the money, and they get paid if the borrower defaults, different from 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 home buyers can keep from bearing the cost of PMI
With the implementation of The Homeowners Protection Act of 1998, on nearly all loans lenders are obligated to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Savvy homeowners can get off the hook beforehand. The law states that, upon request of the home owner, the PMI must be abandoned when the principal amount equals just 80 percent.
It can take many years to get to the point where the principal is only 20% of the initial loan amount, so it's crucial to know how your home has appreciated in value. After all, all of the appreciation you've gained over the years counts towards removing PMI. So what's the reason for paying it after your loan balance has fallen below the 80% threshold? Despite the fact that nationwide trends hint at declining home values, understand that real estate is local. Your neighborhood may not be adhering to the national trends and/or your home may have acquired equity before things cooled off.
A certified, 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 understand the market dynamics of their area. At Floyd Appraisal Works, we're masters at determining value trends in Hohenwald, Lewis County and surrounding areas, and we know when property values have risen or declined. When faced with information from an appraiser, the mortgage company will usually drop the PMI with little effort. 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: