Let A. M. Appraisals help you decide if you can cancel your PMI
When purchasing a home, a 20% down payment is typically the standard. Since the risk for the lender is oftentimes only the difference between the home value and the sum outstanding on the loan, the 20% supplies a nice buffer against the expenses of foreclosure, reselling the home, and regular value changesin the event a borrower doesn't pay.
During the recent mortgage boom of the mid 2000s, it was common to see lenders commanding down payments of 10, 5 or sometimes 0 percent. How does a lender endure the additional risk of the small down payment? The answer is Private Mortgage Insurance or PMI. This supplemental policy takes care of the lender in case a borrower defaults on the loan and the value of the house is less than what is owed on the loan.
PMI can be costly to a borrower on the grounds that the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and many times isn't even tax deductible. Separate from a piggyback loan where the lender takes in all the deficits, PMI is beneficial for the lender because they acquire the money, and they get paid if the borrower defaults.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a home buyer refrain from bearing the expense of PMI?
With the employment of The Homeowners Protection Act of 1998, on nearly all loans lenders are forced to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. Savvy home owners can get off the hook ahead of time. The law designates that, at the request of the home owner, the PMI must be dropped when the principal amount equals just 80 percent.
It can take countless years to get to the point where the principal is only 20% of the original loan amount, so it's crucial to know how your home has grown in value. After all, any appreciation you've achieved over time counts towards dismissing PMI. So what's the reason for paying it after your loan balance has fallen below the 80% threshold? Your neighborhood might not be reflecting the national trends and/or your home could have gained equity before things settled down, so even when nationwide trends hint at plunging home values, you should realize that real estate is local.
The difficult thing for most homeowners to understand is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can definitely help. As appraisers, it's our job to keep up with the market dynamics of our area. At A. M. Appraisals, we're masters at analyzing value trends in West Columbia, Lexington County and surrounding areas, and we know when property values have risen or declined. When faced with data from an appraiser, the mortgage company will generally do away with the PMI with little effort. At which 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:
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