James Earp Appraisal Service can help you remove your Private Mortgage Insurance
When getting a mortgage, a 20% down payment is typically the standard. The lender's risk is generally only the difference between the home value and the sum outstanding on the loan, so the 20% adds a nice cushion against the expenses of foreclosure, selling the home again, and natural value fluctuations in the event a purchaser is unable to pay.
During the recent mortgage upturn of the last decade, it became common to see lenders requiring down payments of 10, 5 or often 0 percent. A lender is able to endure the added risk of the minimal down payment with Private Mortgage Insurance or PMI. This added policy covers the lender in case a borrower defaults on the loan and the market price of the property is lower than what is owed on the loan.
Because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and many times isn't even tax deductible, PMI is costly to a borrower. It's beneficial for the lender because they acquire the money, and they get paid if the borrower is unable to pay, opposite 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 avoid paying PMI?
With the implementation of The Homeowners Protection Act of 1998, on nearly all loans lenders are required to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. Smart home owners can get off the hook beforehand. The law designates that, at the request of the homeowner, the PMI must be released when the principal amount reaches only 80 percent.
It can take many years to reach the point where the principal is only 20% of the initial amount of the loan, so it's important to know how your home has increased in value. After all, any appreciation you've acquired over the years counts towards removing PMI. So why should you pay it after your loan balance has dropped below the 80% mark? Your neighborhood might not be heeding the national trends and/or your home could have acquired equity before things settled down, so even when nationwide trends signify declining home values, you should realize that real estate is local.
An accredited, licensed real estate appraiser can help homeowners understand just when their home's equity rises above the 20% point, as it's a difficult thing to know. It is an appraiser's job to understand the market dynamics of their area. At James Earp Appraisal Service, we're experts at identifying value trends in Raleigh, Wake County and surrounding areas, and we know when property values have risen or declined. When faced with figures from an appraiser, the mortgage company will generally drop the PMI with little anxiety. At which 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: