All City Appraisal can help you remove your Private Mortgage Insurance
When getting a mortgage, a 20% down payment is typically the standard. The lender's liability is usually only the difference between the home value and the sum outstanding on the loan, so the 20% provides a nice cushion against the costs of foreclosure, reselling the home, and regular value variations on the chance that a borrower defaults.
Banks were accepting down payments as low as 10, 5 and often 0 percent during the mortgage boom of the last decade. How does a lender manage the increased risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI covers the lender in case a borrower defaults on the loan and the value of the house is lower than what the borrower still owes on the loan.
Since the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and generally isn't even tax deductible, PMI is costly to a borrower. It's profitable for the lender because they acquire the money, and they receive payment if the borrower is unable to pay, contradictory to 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 can home buyers avoid paying PMI?
The Homeowners Protection Act of 1998 forces the lenders on nearly all loans to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Keen home owners can get off the hook ahead of time. The law guarantees that, upon request of the homeowner, the PMI must be released when the principal amount equals only 80 percent.
Because it can take countless years to arrive at the point where the principal is just 20% of the initial amount of the loan, it's important to know how your home has grown in value. After all, any appreciation you've accomplished over the years counts towards dismissing PMI. So why pay it after your loan balance has fallen below the 80% threshold? Your neighborhood might not be reflecting the national trends and/or your home could have gained equity before things cooled off, so even when nationwide trends hint at decreasing home values, you should realize that real estate is local.
The toughest 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're masters at determining value trends in Woodland Hills, Los Angeles County and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will most often do away with the PMI with little anxiety. At that time, the homeowner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: