Let Quality Appraisals help you discover if you can eliminate your PMI
It's largely inferred that a 20% down payment is the standard when getting a mortgage. The lender's risk is oftentimes only the remainder between the home value and the sum due on the loan, so the 20% provides a nice cushion against the expenses of foreclosure, selling the home again, and typical value changes in the event a borrower doesn't pay.
During the recent mortgage boom of the mid 2000s, it became widespread to see lenders commanding down payments of 10, 5 or sometimes 0 percent. How does a lender manage the increased risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This additional plan takes care of the lender in the event a borrower defaults on the loan and the value of the property is less than the balance of the loan.
Because the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and often isn't even tax deductible, PMI can be costly to a borrower. It's favorable for the lender because they collect the money, and they get the money if the borrower doesn't 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 homebuyers prevent bearing the expense of PMI?
With the utilization of The Homeowners Protection Act of 1998, on most loans lenders are forced to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the beginning loan amount. The law pledges that, upon request of the home owner, the PMI must be released when the principal amount equals only 80 percent. So, smart homeowners can get off the hook a little earlier.
Considering it can take many years to reach the point where the principal is only 20% of the initial amount of the loan, it's essential to know how your home has appreciated in value. After all, any appreciation you've accomplished over time counts towards abolishing PMI. So why pay it after your loan balance has dropped below the 80% threshold? Your neighborhood might not be minding the national trends and/or your home could have gained equity before things simmered down, so even when nationwide trends forecast falling home values, you should realize that real estate is local.
The difficult thing for many home owners to know is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can definitely help. As appraisers, it's our job to know the market dynamics of our area. At Quality Appraisals, we know when property values have risen or declined. We're masters at pinpointing value trends in Kansas City, Clay County and surrounding areas. When faced with figures from an appraiser, the mortgage company will often drop 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: