Have equity in your home? Want a lower payment? An appraisal from Forward Appraisals can help you get rid of your PMI.
When purchasing a home, a 20% down payment is usually the standard. The lender's liability is usually only the remainder between the home value and the sum due on the loan, so the 20% adds a nice cushion against the costs of foreclosure, selling the home again, and natural value variations in the event a borrower is unable to pay.
The market was working with down payments as low as 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender endure the added risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI covers the lender in case a borrower is unable to pay on the loan and the worth of the property is less than what the borrower still owes on the loan.
PMI is costly to a borrower because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and generally isn't even tax deductible. It's lucrative for the lender because they collect the money, and they get paid if the borrower is unable to pay, unlike a piggyback loan where the lender absorbs 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 homeowner refrain from bearing the expense of PMI?
The Homeowners Protection Act of 1998 obligates the lenders on most loans to automatically cease the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. Wise home owners can get off the hook beforehand. The law pledges that, upon request of the home owner, the PMI must be abandoned when the principal amount equals just 80 percent.
Since it can take many years to arrive at the point where the principal is only 20% of the initial amount of the loan, it's essential 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% threshold? Even when nationwide trends hint at decreasing home values, understand that real estate is local. Your neighborhood may not be reflecting the national trends and/or your home may have acquired equity before things calmed down.
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 hard thing to know. As appraisers, it's our job to know the market dynamics of our area. At Forward Appraisals, we know when property values have risen or declined. We're experts at pinpointing value trends in Contra Costa & Alameda County as well as the surrounding market sector. When faced with figures from an appraiser, the mortgage company will usually drop the PMI with little anxiety. At that 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: