Let The Welter Appraisal Group help you figure out if you can get rid of your PMI
When buying a house, a 20% down payment is usually the standard. The lender's liability is generally only the difference between the home value and the sum due on the loan, so the 20% provides a nice buffer against the charges of foreclosure, selling the home again, and natural value fluctuations on the chance that a borrower defaults.
During the recent mortgage boom of the mid 2000s, it became customary to see lenders requiring down payments of 10, 5 or even 0 percent. How does a lender handle the additional risk of the low down payment? The answer is Private Mortgage Insurance or PMI. This supplementary plan protects the lender in the event a borrower defaults on the loan and the worth of the property is less than the balance of the loan.
Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and generally isn't even tax deductible, PMI can be expensive to a borrower. Contradictory to a piggyback loan where the lender takes in all the costs, PMI is lucrative for the lender because they acquire the money, and they receive payment if the borrower doesn't pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a homeowner prevent bearing the cost of PMI?
The Homeowners Protection Act of 1998 obligates the lenders on most loans to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. Smart home owners can get off the hook sooner than expected. The law promises that, at the request of the homeowner, the PMI must be released when the principal amount reaches only 80 percent.
It can take many years to arrive at the point where the principal is only 20% of the initial amount of the loan, so it's important 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 should you pay it after your loan balance has fallen below the 80% threshold? Even when nationwide trends hint at decreasing home values, realize that real estate is local. Your neighborhood might not be minding the national trends and/or your home might have secured equity before things settled down.
The toughest thing for almost all homeowners to know is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can definitely help. As appraisers, it's our job to keep up with the market dynamics of our area. At The Welter Appraisal Group, we know when property values have risen or declined. We're experts at pinpointing value trends in Oakhurst, Monmouth County and surrounding areas. Faced with figures 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: