Have equity in your home? Want a lower payment? An appraisal from James Earp Appraisal Service can help you get rid of your PMI.
A 20% down payment is usually accepted when getting a mortgage. Considering the liability for the lender is usually only the difference between the home value and the amount due on the loan, the 20% provides a nice cushion against the expenses of foreclosure, selling the home again, and regular value changeson the chance that a purchaser defaults.
During the recent mortgage boom of the mid 2000s, it became widespread to see lenders commanding down payments of 10, 5 or often 0 percent. How does a lender manage the increased risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This additional plan takes care of the lender in case a borrower is unable to pay on the loan and the value of the house is lower than what is owed on the loan.
Since the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and oftentimes isn't even tax deductible, PMI is costly to a borrower. Different from a piggyback loan where the lender absorbs all the costs, PMI is lucrative for the lender because they acquire the money, and they get paid if the borrower is unable to pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How home buyers can keep from bearing the cost of PMI
The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. The law promises that, at the request of the homeowner, the PMI must be abandoned when the principal amount equals just 80 percent. So, wise home owners can get off the hook a little early.
Since it can take countless years to reach the point where the principal is just 20% of the original loan amount, it's important to know how your home has increased in value. After all, any appreciation you've achieved over the years counts towards abolishing PMI. So why pay it after your loan balance has dropped below the 80% threshold? Your neighborhood might not be adopting the national trends and/or your home could have gained equity before things simmered down, so even when nationwide trends hint at decreasing home values, you should realize that real estate is local.
The difficult thing for almost all homeowners to understand is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can surely help. As appraisers, it's our job to understand the market dynamics of our area. At James Earp Appraisal Service, we know when property values have risen or declined. We're experts at pinpointing value trends in Raleigh, Wake County and surrounding areas. When faced with data from an appraiser, the mortgage company will usually drop the PMI with little effort. At which 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: