Let Area Appraisal Services, Inc. help you determine if you can cancel your PMI
It's widely known that a 20% down payment is accepted when buying a house. The lender's liability is often only the remainder between the home value and the amount due on the loan, so the 20% provides a nice buffer against the costs of foreclosure, selling the home again, and regular value fluctuations on the chance that a borrower defaults.
During the recent mortgage boom of the mid 2000s, it became customary to see lenders requiring down payments of 10, 5 or even 0 percent. How does a lender endure the increased risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI guards the lender in the event a borrower is unable to pay on the loan and the worth of the property is lower than the loan balance.
Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and oftentimes isn't even tax deductible, PMI is costly to a borrower. Separate from a piggyback loan where the lender takes in all the deficits, PMI is lucrative for the lender because they acquire the money, and they get the money 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 owners avoid paying PMI?
With the employment of The Homeowners Protection Act of 1998, on nearly all loans lenders are obligated to automatically cease the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. The law promises that, upon request of the home owner, the PMI must be dropped when the principal amount reaches just 80 percent. So, keen home owners can get off the hook a little early.
Because it can take many years to reach the point where the principal is only 20% of the initial amount borrowed, it's important to know how your home has appreciated in value. After all, any appreciation you've acquired over time counts towards removing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% mark? Despite the fact that nationwide trends predict declining home values, realize that real estate is local. Your neighborhood may not be minding the national trends and/or your home might have gained equity before things calmed down.
The hardest thing for most home owners to understand is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can surely help. As appraisers, it's our job to know the market dynamics of our area. At Area Appraisal Services, Inc., we're experts at identifying 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 usually do away with the PMI with little anxiety. At that time, the homeowner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link:
Got a Question?
Do you have a question relating to real estate appraisals? We can help. Simply fill out the form below and we'll contact you with the answer, with no obligation to you. We guarantee your privacy.