Let Area Appraisal Services, Inc. help you discover if you can eliminate your PMI
When purchasing a home, a 20% down payment is usually the standard. The lender's liability is oftentimes only the difference between the home value and the sum outstanding on the loan, so the 20% provides a nice cushion against the charges of foreclosure, selling the home again, and regular value changes on the chance that a purchaser is unable to pay.
During the recent mortgage upturn of the last decade, it became common to see lenders taking down payments of 10, 5 or sometimes 0 percent. How does a lender manage the additional risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI protects the lender in case a borrower defaults on the loan and the market price of the house is less than what is owed on the loan.
PMI is costly to a borrower in that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and frequently isn't even tax deductible. It's lucrative for the lender because they acquire the money, and they get the money if the borrower doesn't pay, unlike a piggyback loan where the lender takes in all the losses.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can home buyers prevent bearing the expense of PMI?
With the utilization of The Homeowners Protection Act of 1998, on most loans lenders are obligated to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law stipulates that, upon request of the homeowner, the PMI must be released when the principal amount equals just 80 percent. So, savvy homeowners can get off the hook ahead of time.
It can take countless years to reach the point where the principal is only 20% of the original amount borrowed, so it's necessary to know how your home has grown 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 the balance of your loan has dropped below the 80% mark? Even when nationwide trends hint at plunging home values, be aware that real estate is local. Your neighborhood may not be adopting the national trends and/or your home may have secured equity before things cooled off.
The difficult thing for almost all home owners to understand is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can definitely help. As appraisers, it's our job to understand the market dynamics of our area. At Area Appraisal Services, Inc., we're experts at recognizing value trends in Bethesda, Montgomery County and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will often do away with 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:
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