Have equity in your home? Want a lower payment? An appraisal from Higdon & Associates can help you get rid of your PMI.
It's typically inferred that a 20% down payment is the standard when buying a house. Considering the liability for the lender is generally only the remainder between the home value and the sum remaining on the loan, the 20% provides a nice buffer against the costs of foreclosure, selling the home again, and typical value fluctuationsin the event a borrower doesn't pay.
The market was taking down payments down to 10, 5 and even 0 percent during the mortgage boom of the mid 2000s. How does a lender handle the added risk of the small down payment? The answer is Private Mortgage Insurance or PMI. PMI protects the lender in the event a borrower is unable to pay on the loan and the value of the property is less than what is owed on the loan.
Since the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and frequently isn't even tax deductible, PMI is pricey to a borrower. It's advantageous for the lender because they collect the money, and they receive payment if the borrower doesn't pay, separate from a piggyback loan where the lender absorbs all the costs.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How buyers can prevent paying PMI
With the employment of The Homeowners Protection Act of 1998, on most loans lenders are required to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. Wise home owners can get off the hook a little earlier. The law designates that, at the request of the home owner, the PMI must be abandoned when the principal amount reaches 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 necessary to know how your home has grown in value. After all, any appreciation you've acquired over time counts towards abolishing PMI. So why pay it after your loan balance has fallen below the 80% threshold? Your neighborhood might not be heeding the national trends and/or your home might have secured equity before things simmered down, so even when nationwide trends hint at plummeting home values, you should realize that real estate is local.
The toughest thing for almost all homeowners to understand is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can certainly help. It is an appraiser's job to recognize the market dynamics of their 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 generally do away with the PMI with little effort. At which time, the home owner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: