Have equity in your home? Want a lower payment? An appraisal from All City Appraisal can help you get rid of your PMI.
When getting a mortgage, a 20% down payment is usually the standard. The lender's liability is often only the difference between the home value and the sum remaining on the loan, so the 20% supplies a nice buffer against the costs of foreclosure, reselling the home, and natural value fluctuations in the event a borrower doesn't pay.
During the recent mortgage boom of the mid 2000s, it became widespread to see lenders taking down payments of 10, 5 or often 0 percent. How does a lender endure the additional risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI takes care of the lender in the event a borrower doesn't pay on the loan and the market price of the house is less than the loan balance.
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 profitable for the lender because they collect the money, and they get the money if the borrower doesn't pay, separate from a piggyback loan where the lender consumes all the damages.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How buyers can prevent bearing the expense of PMI
The Homeowners Protection Act of 1998 makes the lenders on nearly all loans to automatically terminate the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. The law promises that, upon request of the home owner, the PMI must be abandoned when the principal amount equals only 80 percent. So, keen homeowners can get off the hook sooner than expected.
Considering it can take many years to arrive at the point where the principal is just 20% of the initial amount of the loan, it's necessary to know how your home has appreciated in value. After all, any appreciation you've gained over the years counts towards removing PMI. So why should you pay it after your loan balance has fallen below the 80% mark? Despite the fact that nationwide trends signify declining home values, realize that real estate is local. Your neighborhood might not be adhering to the national trends and/or your home could have secured equity before things simmered down.
The toughest thing for almost all home owners to know is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can definitely help. It is an appraiser's job to understand the market dynamics of their area. At All City Appraisal, we're experts at recognizing value trends in Woodland Hills, Los Angeles County and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will most often do away with the PMI with little anxiety. At which time, the homeowner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: