Have equity in your home? Want a lower payment? An appraisal from Higdon & Associates can help you get rid of your PMI.
When purchasing a home, a 20% down payment is typically the standard. The lender's risk is oftentimes only the difference between the home value and the sum remaining on the loan, so the 20% provides a nice buffer against the charges of foreclosure, reselling the home, and regular value variations in the event a purchaser doesn't pay.
Banks were accepting down payments as low as 10, 5 and even 0 percent in the peak of last decade's mortgage boom. A lender is able to manage the additional risk of the small down payment with Private Mortgage Insurance or PMI. This supplemental plan guards the lender in the event a borrower doesn't pay on the loan and the worth of the house is lower than the balance of the loan.
Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and generally isn't even tax deductible, PMI can be costly to a borrower. It's favorable for the lender because they secure the money, and they get the money if the borrower defaults, opposite 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 avoid bearing the cost of PMI
With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are obligated to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. Keen homeowners can get off the hook ahead of time. The law designates that, upon request of the home owner, the PMI must be dropped when the principal amount equals just 80 percent.
Considering it can take many years to get to the point where the principal is only 20% of the original amount of the loan, it's essential to know how your home has grown in value. After all, every bit of appreciation you've accomplished over time counts towards removing PMI. So why should you pay it after the balance of your loan has fallen below the 80% mark? Your neighborhood may not be heeding the national trends and/or your home may have acquired equity before things calmed down, so even when nationwide trends signify plummeting home values, you should understand that real estate is local.
A certified, licensed real estate appraiser can help homeowners understand just when their home's equity rises above the 20% point, as it's a difficult thing to know. As appraisers, it's our job to keep up with the market dynamics of our area. At Higdon & Associates, we're experts at recognizing value trends in Antioch, Contra Costa County and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will often eliminate the PMI with little effort. At which time, the home owner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: