Have equity in your home? Want a lower payment? An appraisal from Higdon & Associates can help you get rid of your PMI.
A 20% down payment is typically accepted when purchasing a home. Because the risk for the lender is often only the difference between the home value and the sum remaining on the loan, the 20% provides a nice cushion against the costs of foreclosure, reselling the home, and natural value variationson the chance that a borrower defaults.
During the recent mortgage boom of the last decade, it was common to see lenders taking down payments of 10, 5 or even 0 percent. A lender is able to manage the additional risk of the small down payment with Private Mortgage Insurance or PMI. This supplemental plan takes care of the lender in case a borrower is unable to pay on the loan and the value of the property is lower than what the borrower still owes on the loan.
Since the $40-$50 a month per $100,000 borrowed is bundled into the mortgage payment and often isn't even tax deductible, PMI is pricey to a borrower. It's profitable for the lender because they obtain the money, and they get the money if the borrower defaults, contradictory to a piggyback loan where the lender takes in 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 home buyers keep from paying PMI?
With the implementation of The Homeowners Protection Act of 1998, on most loans lenders are required to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. Wise homeowners can get off the hook a little early. The law designates that, upon request of the homeowner, the PMI must be dropped when the principal amount equals just 80 percent.
Since it can take countless years to arrive at the point where the principal is only 20% of the original amount of the loan, it's important to know how your home has increased in value. After all, all of the appreciation you've achieved over the years counts towards dismissing PMI. So what's the reason for paying it after your loan balance has dropped below the 80% mark? Your neighborhood may not be adhering to the national trends and/or your home might have acquired equity before things simmered down, so even when nationwide trends forecast declining home values, you should realize that real estate is local.
The difficult thing for most home owners to understand is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can definitely help. It's an appraiser's job to keep up with the market dynamics of their area. At Higdon & Associates, we're experts at identifying 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 generally eliminate the PMI with little trouble. At that 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: