Let James Earp Appraisal Service help you decide if you can get rid of your PMI
A 20% down payment is typically the standard when purchasing a home. The lender's risk is often only the difference between the home value and the sum outstanding on the loan, so the 20% provides a nice cushion against the expenses of foreclosure, selling the home again, and typical value fluctuations on the chance that a purchaser doesn't pay.
During the recent mortgage boom of the mid 2000s, it became common to see lenders taking down payments of 10, 5 or even 0 percent. How does a lender endure the added risk of the low down payment? The answer is Private Mortgage Insurance or PMI. PMI takes care of the lender in case a borrower is unable to pay on the loan and the worth of the property is less than what is owed on the loan.
Since the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and frequently isn't even tax deductible, PMI can be pricey to a borrower. It's advantageous for the lender because they acquire the money, and they receive payment if the borrower is unable to pay, unlike a piggyback loan where the lender takes in all the deficits.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can homeowners avoid paying PMI?
With the employment of The Homeowners Protection Act of 1998, on most loans lenders are required to automatically cease the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. Savvy home owners can get off the hook a little earlier. The law pledges that, at the request of the home owner, the PMI must be released when the principal amount reaches just 80 percent.
It can take countless years to get to 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 appreciated in value. After all, every bit of appreciation you've gained over the years counts towards abolishing PMI. So why pay it after your loan balance has dropped below the 80% mark? Your neighborhood might not be following the national trends and/or your home could have gained equity before things calmed down, so even when nationwide trends signify plummeting home values, you should understand that real estate is local.
The toughest thing for almost all home owners to understand is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can surely help. It's an appraiser's job to understand the market dynamics of their area. At James Earp Appraisal Service, we're masters at determining 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 often drop the PMI with little anxiety. At which time, the home owner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: