Let Floyd Appraisal Works help you decide if you can cancel your PMI
When purchasing a home, a 20% down payment is usually the standard. Because the liability for the lender is generally only the difference between the home value and the amount due on the loan, the 20% provides a nice buffer against the charges of foreclosure, reselling the home, and typical value fluctuationson the chance that a borrower is unable to pay.
During the recent mortgage boom of the last decade, it was customary to see lenders commanding down payments of 10, 5 or even 0 percent. How does a lender endure the increased risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI takes care of the lender in the event a borrower defaults on the loan and the worth of the home is less than what is owed on the loan.
PMI can be costly to a borrower because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and often isn't even tax deductible. Unlike a piggyback loan where the lender absorbs all the losses, PMI is favorable for the lender because they secure the money, and they get paid if the borrower defaults.
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 bearing the cost of PMI?
With the employment of The Homeowners Protection Act of 1998, on most loans lenders are required to automatically stop the PMI when the principal balance of the loan equals 78 percent of the original loan amount. Keen home owners can get off the hook ahead of time. The law promises that, upon request of the homeowner, the PMI must be abandoned when the principal amount reaches just 80 percent.
It can take countless years to reach the point where the principal is only 20% of the original loan amount, so it's necessary to know how your home has grown in value. After all, all of the appreciation you've achieved over time counts towards abolishing PMI. So why should you pay it after your loan balance has dropped below the 80% mark? Your neighborhood might not be heeding the national trends and/or your home may have acquired equity before things calmed down, so even when nationwide trends indicate declining home values, you should understand that real estate is local.
An accredited, licensed real estate appraiser can help home owners understand just when their home's equity goes over the 20% point, as it's a tough thing to know. As appraisers, it's our job to know the market dynamics of our area. At Floyd Appraisal Works, we're experts at determining value trends in Hohenwald, Lewis County and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will most often remove the PMI with little anxiety. At that time, the home owner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: