Let All City Appraisal help you figure out if you can eliminate your PMI
It's generally known that a 20% down payment is common when getting a mortgage. Since the risk for the lender is oftentimes only the remainder between the home value and the sum remaining on the loan, the 20% adds a nice cushion against the charges of foreclosure, selling the home again, and natural value changeson the chance that a purchaser doesn't pay.
Lenders were accepting down payments as low as 10, 5 and even 0 percent in the peak of last decade's mortgage boom. How does a lender handle the additional risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI takes care of the lender in case a borrower doesn't pay on the loan and the value of the house is less than the balance of the loan.
Since the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and oftentimes isn't even tax deductible, PMI can be expensive to a borrower. It's money-making for the lender because they collect the money, and they receive payment if the borrower is unable to pay, opposite from a piggyback loan where the lender absorbs all the deficits.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can buyers avoid paying PMI?
With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are forced to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. The law states that, upon request of the home owner, the PMI must be abandoned when the principal amount reaches just 80 percent. So, keen home owners can get off the hook ahead of time.
It can take many years to get to the point where the principal is only 20% of the original amount borrowed, so it's essential to know how your home has appreciated in value. After all, every bit of appreciation you've acquired over time counts towards dismissing PMI. So why pay it after your loan balance has fallen below the 80% mark? Your neighborhood may not be adhering to the national trends and/or your home may have gained equity before things simmered down, so even when nationwide trends indicate decreasing home values, you should understand that real estate is local.
The hardest thing for most homeowners to understand is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can surely help. It is an appraiser's job to know the market dynamics of their area. At All City Appraisal, we're experts at analyzing value trends in Woodland Hills, Los Angeles County and surrounding areas, and we know when property values have risen or declined. When faced with figures from an appraiser, the mortgage company will often drop the PMI with little anxiety. 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: