Let All City Appraisal help you learn if you can cancel your PMI
It's generally understood that a 20% down payment is common when getting a mortgage. Considering the risk for the lender is usually only the remainder between the home value and the sum remaining on the loan, the 20% adds a nice buffer against the expenses of foreclosure, selling the home again, and typical value changeson the chance that a purchaser doesn't pay.
During the recent mortgage upturn of the mid 2000s, it was common to see lenders requiring down payments of 10, 5 or often 0 percent. How does a lender handle the increased risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI covers the lender in the event a borrower doesn't pay on the loan and the market price of the home is lower than the balance of the loan.
PMI can be expensive to a borrower because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and frequently isn't even tax deductible. Unlike a piggyback loan where the lender consumes all the deficits, PMI is money-making for the lender because they secure the money, and they receive payment 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 can home buyers avoid bearing the expense of PMI?
With the utilization 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 original loan amount. Wise home owners can get off the hook sooner than expected. The law promises that, at the request of the home owner, the PMI must be dropped when the principal amount equals only 80 percent.
It can take countless years to get to the point where the principal is only 20% of the initial amount borrowed, so it's important to know how your home has appreciated in value. After all, any appreciation you've obtained over time counts towards dismissing PMI. So why should you pay it after the balance of your loan has dropped below the 80% threshold? Despite the fact that nationwide trends forecast plunging home values, be aware that real estate is local. Your neighborhood may not be reflecting the national trends and/or your home could have gained equity before things cooled off.
The difficult thing for almost all home owners to understand is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can certainly help. It is an appraiser's job to know the market dynamics of their 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 data from an appraiser, the mortgage company will often do away with the PMI with little trouble. At that time, the homeowner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: