James Earp Appraisal Service can help you remove your Private Mortgage Insurance
A 20% down payment is typically accepted when getting a mortgage. The lender's liability is usually only the difference between the home value and the sum due on the loan, so the 20% adds a nice buffer against the costs of foreclosure, reselling the home, and regular value variations in the event a purchaser defaults.
The market was taking down payments as low as 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender manage the increased risk of the small down payment? The solution is Private Mortgage Insurance or PMI. This added policy guards the lender in the event a borrower doesn't pay on the loan and the market price of the property is lower than the balance of the loan.
Since the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and many times isn't even tax deductible, PMI is costly to a borrower. It's advantageous for the lender because they secure the money, and they get the money if the borrower defaults, unlike 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 home buyer refrain from bearing the cost of PMI?
The Homeowners Protection Act of 1998 obligates the lenders on most loans to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. The law states that, upon request of the home owner, the PMI must be released when the principal amount reaches only 80 percent. So, wise homeowners can get off the hook ahead of time.
Considering it can take countless 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 grown in value. After all, all of the appreciation you've achieved over the years counts towards removing PMI. So why pay it after your loan balance has fallen below the 80% threshold? Your neighborhood may not be minding the national trends and/or your home may have secured equity before things simmered down, so even when nationwide trends forecast plunging home values, you should understand that real estate is local.
An accredited, licensed real estate appraiser can help homeowners understand just when their home's equity goes over the 20% point, as it's a tough thing to know. It's an appraiser's job to keep up with the market dynamics of their area. At James Earp Appraisal Service, we're masters at identifying value trends in Raleigh, Wake County and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will generally cancel the PMI with little effort. At that 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: