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 widely understood that a 20% down payment is accepted when buying a house. The lender's risk is generally only the remainder between the home value and the amount outstanding on the loan, so the 20% supplies a nice buffer against the charges of foreclosure, selling the home again, and typical value changes on the chance that a purchaser is unable to pay.
The market was taking down payments down to 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender manage the increased risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI protects the lender in case a borrower defaults on the loan and the market price of the house is less than what is owed on the loan.
PMI is pricey to a borrower because the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and often isn't even tax deductible. It's beneficial for the lender because they secure the money, and they get paid if the borrower is unable to pay, contradictory to 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 homeowners keep from bearing the cost of PMI?
With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are forced to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. The law stipulates that, upon request of the homeowner, the PMI must be released when the principal amount equals just 80 percent. So, savvy homeowners can get off the hook ahead of time.
Considering it can take many years to reach the point where the principal is only 20% of the initial amount borrowed, it's necessary to know how your home has grown in value. After all, all of the appreciation you've acquired over time counts towards dismissing PMI. So why pay it after the balance of your loan has fallen below the 80% mark? Despite the fact that nationwide trends indicate decreasing home values, realize that real estate is local. Your neighborhood may not be adopting the national trends and/or your home could have acquired equity before things calmed down.
The toughest thing for many homeowners to understand is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can surely help. It's an appraiser's job to understand the market dynamics of their area. At All City Appraisal, we're masters at recognizing value trends in Woodland Hills, Los Angeles County and surrounding areas, and we know when property values have risen or declined. When faced with information from an appraiser, the mortgage company will generally eliminate the PMI with little effort. 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: