Have equity in your home? Want a lower payment? An appraisal from Floyd Appraisal Works can help you get rid of your PMI.
It's widely understood that a 20% down payment is the standard when purchasing a home. The lender's liability is usually only the remainder between the home value and the amount due on the loan, so the 20% provides a nice buffer against the expenses of foreclosure, selling the home again, and natural value changes in the event a purchaser doesn't pay.
Banks were accepting down payments down to 10, 5 and often 0 percent in the peak of last decade's mortgage boom. A lender is able to handle the added risk of the small down payment with Private Mortgage Insurance or PMI. This additional policy protects the lender if a borrower is unable to pay on the loan and the value of the house is lower than the balance of the loan.
PMI is costly to a borrower because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and oftentimes isn't even tax deductible. Separate from a piggyback loan where the lender consumes all the costs, PMI is lucrative 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 a buyer refrain from paying PMI?
The Homeowners Protection Act of 1998 requires the lenders on nearly all loans 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 released when the principal amount equals just 80 percent. So, wise home owners can get off the hook ahead of time.
It can take many years to reach the point where the principal is only 20% of the initial loan amount, so it's crucial to know how your home has grown in value. After all, every bit of appreciation you've accomplished over time counts towards removing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% threshold? Your neighborhood might not be heeding the national trends and/or your home might have secured 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 rises above the 20% point, as it's a difficult thing to know. It is an appraiser's job to keep up with the market dynamics of their area. At Floyd Appraisal Works, we know when property values have risen or declined. We're masters at pinpointing value trends in Hohenwald, Lewis County and surrounding areas. When faced with figures from an appraiser, the mortgage company will often do away with the PMI with little trouble. 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: