Let Area Appraisal Services, Inc. help you determine if you can eliminate your PMI
A 20% down payment is usually the standard when buying a house. The lender's risk is generally only the remainder between the home value and the amount outstanding on the loan, so the 20% supplies a nice cushion against the expenses of foreclosure, selling the home again, and natural value changes in the event a purchaser doesn't pay.
The market was taking down payments as low as 10, 5 and even 0 percent in the peak of last decade's mortgage boom. How does a lender endure the added risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI guards the lender if a borrower defaults on the loan and the value of the home is lower than the loan balance.
PMI is pricey to a borrower in that the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and frequently isn't even tax deductible. It's favorable for the lender because they acquire the money, and they get the money if the borrower is unable to pay, contradictory to a piggyback loan where the lender takes in all the costs.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a homeowner prevent bearing the cost of PMI?
With the implementation of The Homeowners Protection Act of 1998, on nearly all loans lenders are required to automatically stop the PMI when the principal balance of the loan equals 78 percent of the original loan amount. Savvy home owners can get off the hook sooner than expected. The law designates that, upon request of the home owner, the PMI must be released when the principal amount reaches just 80 percent.
Because it can take many years to arrive at the point where the principal is only 20% of the original amount of the loan, it's important to know how your home has increased in value. After all, every bit of appreciation you've achieved over time counts towards abolishing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% mark? Despite the fact that nationwide trends predict falling home values, understand that real estate is local. Your neighborhood might not be adhering to the national trends and/or your home might have secured equity before things simmered down.
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 tough thing to know. As appraisers, it's our job to know the market dynamics of our area. At Area Appraisal Services, Inc., we're masters at analyzing value trends in Bethesda, Montgomery County and surrounding areas, and we know when property values have risen or declined. Faced with data from an appraiser, the mortgage company will often eliminate the PMI with little effort. At which time, the homeowner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link:
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