Let Realty Valuators, Inc help you decide if you can eliminate your PMI
It's widely inferred that a 20% down payment is the standard when buying a house. Because the risk for the lender is generally only the remainder between the home value and the sum due on the loan, the 20% adds a nice cushion against the costs of foreclosure, reselling the home, and typical value variationsin the event a purchaser is unable to pay.
The market was working with 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 solution is Private Mortgage Insurance or PMI. PMI guards the lender if a borrower is unable to pay on the loan and the market price of the house is less than what is owed on the loan.
Because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and often isn't even tax deductible, PMI is costly to a borrower. Opposite from a piggyback loan where the lender takes in all the damages, PMI is beneficial for the lender because they obtain the money, and they get the money if the borrower doesn't pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a buyer refrain from paying PMI?
With the employment of The Homeowners Protection Act of 1998, on most loans lenders are required to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law pledges that, upon request of the home owner, the PMI must be dropped when the principal amount reaches just 80 percent. So, smart homeowners can get off the hook ahead of time.
Because it can take many years to reach the point where the principal is just 20% of the initial amount borrowed, it's crucial to know how your home has grown in value. After all, every bit of appreciation you've achieved over the years counts towards abolishing PMI. So why should you pay it after the balance of your loan has fallen below the 80% threshold? Even when nationwide trends hint at decreasing home values, realize that real estate is local. Your neighborhood might not be adopting the national trends and/or your home might have gained equity before things calmed down.
The difficult thing for many homeowners to know is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can surely help. As appraisers, it's our job to know the market dynamics of our area. At Realty Valuators, Inc, we're masters at identifying value trends in Sun City Center, Hillsborough County and surrounding areas, and we know when property values have risen or declined. When faced with information from an appraiser, the mortgage company will most often drop the PMI with little anxiety. At which time, the home owner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: