Let Jamie Shertzer Appraisals help you learn if you can eliminate your PMI
It's largely understood that a 20% down payment is accepted when purchasing a home. The lender's risk is usually only the remainder between the home value and the amount due on the loan, so the 20% adds a nice cushion against the expenses of foreclosure, reselling the home, and natural value fluctuations on the chance that a purchaser is unable to pay.
The market was taking down payments as low as 10, 5 and often 0 percent in the peak of last decade's mortgage boom. A lender is able to endure the increased risk of the reduced down payment with Private Mortgage Insurance or PMI. This supplementary plan covers the lender in the event a borrower defaults on the loan and the value of the property is less than what the borrower still owes on the loan.
PMI is pricey to a borrower in that the $40-$50 a month per $100,000 borrowed is compiled into the mortgage monthly payment and frequently isn't even tax deductible. Opposite from a piggyback loan where the lender absorbs all the costs, PMI is lucrative for the lender because they secure the money, and they get paid if the borrower is unable to pay.
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 keep from bearing the expense of PMI?
The Homeowners Protection Act of 1998 requires the lenders on most loans to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the initial loan amount. The law designates that, at the request of the home owner, the PMI must be dropped when the principal amount equals only 80 percent. So, wise homeowners can get off the hook ahead of time.
It can take countless years to get to the point where the principal is just 20% of the original loan amount, so it's essential to know how your home has grown in value. After all, any appreciation you've acquired over time counts towards dismissing PMI. So what's the reason for paying it after your loan balance has fallen below the 80% threshold? Even when nationwide trends forecast declining home values, understand that real estate is local. Your neighborhood might not be following the national trends and/or your home might have secured equity before things simmered down.
An accredited, licensed real estate appraiser can help homeowners understand just when their home's equity rises above the 20% point, as it's a hard thing to know. As appraisers, it's our job to recognize the market dynamics of our area. At Jamie Shertzer Appraisals, we know when property values have risen or declined. We're masters at determining value trends in Dothan, Houston County and surrounding areas. When faced with information from an appraiser, the mortgage company will most often remove the PMI with little anxiety. At that time, the homeowner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: