Have equity in your home? Want a lower payment? An appraisal from All City Appraisal can help you get rid of your PMI.
It's largely understood that a 20% down payment is accepted when getting a mortgage. Considering the risk for the lender is often only the difference between the home value and the sum outstanding on the loan, the 20% provides a nice buffer against the costs of foreclosure, reselling the home, and regular value variationsin the event a purchaser doesn't pay.
Lenders were accepting down payments down to 10, 5 and even 0 percent during the mortgage boom of the mid 2000s. How does a lender handle the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI covers the lender in case a borrower doesn't pay on the loan and the worth of the property is lower than what the borrower still owes on the loan.
PMI is pricey to a borrower because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and oftentimes isn't even tax deductible. Unlike a piggyback loan where the lender absorbs all the losses, PMI is profitable for the lender because they obtain the money, and they receive payment if the borrower doesn't pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can homebuyers refrain from paying PMI?
The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. The law stipulates that, upon request of the homeowner, the PMI must be released when the principal amount reaches only 80 percent. So, savvy homeowners can get off the hook a little earlier.
Because it can take countless years to arrive at the point where the principal is just 20% of the original amount of the loan, 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 what's the reason for paying it after the balance of your loan has fallen below the 80% threshold? Your neighborhood might not be adopting the national trends and/or your home could have acquired equity before things calmed down, so even when nationwide trends predict plummeting home values, you should realize that real estate is local.
The hardest thing for most homeowners to understand is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can certainly help. As appraisers, it's our job to know the market dynamics of our area. At All City Appraisal, we know when property values have risen or declined. We're experts at determining value trends in Woodland Hills, Los Angeles County and surrounding areas. Faced with information from an appraiser, the mortgage company will generally drop the PMI with little anxiety. At which 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: