Have equity in your home? Want a lower payment? An appraisal from Area Appraisal Services, Inc. can help you get rid of your PMI.
It's widely understood that a 20% down payment is the standard when buying a house. The lender's liability is often only the difference between the home value and the amount outstanding on the loan, so the 20% provides a nice cushion against the charges of foreclosure, selling the home again, and natural value changes on the chance that a borrower doesn't pay.
During the recent mortgage boom of the mid 2000s, it was widespread to see lenders taking down payments of 10, 5 or sometimes 0 percent. A lender is able to manage the increased risk of the low down payment with Private Mortgage Insurance or PMI. PMI guards the lender in case a borrower is unable to pay on the loan and the value of the home is lower than the loan balance.
Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and oftentimes isn't even tax deductible, PMI is pricey to a borrower. It's advantageous for the lender because they secure the money, and they receive payment if the borrower is unable to pay, different from a piggyback loan where the lender consumes 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 a homebuyer refrain from bearing the cost of PMI?
With the employment of The Homeowners Protection Act of 1998, on most loans lenders are forced to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law promises that, upon request of the home owner, the PMI must be abandoned when the principal amount equals only 80 percent. So, savvy homeowners can get off the hook a little earlier.
It can take many years to arrive at the point where the principal is only 20% of the initial loan amount, so it's essential to know how your home has grown in value. After all, any appreciation you've obtained over the years counts towards dismissing PMI. So why pay it after your loan balance has fallen below the 80% mark? Even when nationwide trends hint at decreasing home values, be aware that real estate is local. Your neighborhood might not be adopting the national trends and/or your home might have acquired equity before things settled down.
The hardest thing for most homeowners to understand is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can definitely help. As appraisers, it's our job to keep up with 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 eliminate the PMI with little effort. At that time, the home owner 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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