Have equity in your home? Want a lower payment? An appraisal from LHC Appraisals can help you get rid of your PMI.
When purchasing a home, a 20% down payment is typically the standard. Because the liability for the lender is generally only the remainder between the home value and the sum outstanding on the loan, the 20% supplies a nice buffer against the expenses of foreclosure, selling the home again, and natural value fluctuationson the chance that a purchaser is unable to pay.
Lenders were working with down payments as low as 10, 5 and even 0 percent in the peak of last decade's mortgage boom. How does a lender endure the added risk of the small down payment? The solution is Private Mortgage Insurance or PMI. PMI protects the lender if a borrower doesn't pay on the loan and the market price of the property is less than what the borrower still owes on the loan.
PMI is costly to a borrower in that the $40-$50 a month per $100,000 borrowed is rolled into the mortgage monthly payment and generally isn't even tax deductible. It's beneficial for the lender because they collect the money, and they get the money if the borrower is unable to pay, different from a piggyback loan where the lender absorbs all the losses.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can homeowners prevent paying PMI?
With the implementation of The Homeowners Protection Act of 1998, on nearly all loans lenders are obligated to automatically cancel the PMI when the principal balance of the loan equals 78 percent of the initial loan amount. Wise homeowners can get off the hook a little early. The law promises that, upon request of the home owner, the PMI must be released when the principal amount reaches only 80 percent.
Since it can take countless years to arrive at the point where the principal is only 20% of the initial amount of the loan, it's essential to know how your home has increased in value. After all, every bit of appreciation you've accomplished over the years counts towards dismissing PMI. So why pay it after the balance of your loan has dropped below the 80% threshold? Despite the fact that nationwide trends hint at declining home values, understand that real estate is local. Your neighborhood might not be adopting the national trends and/or your home may have secured equity before things simmered down.
The difficult thing for almost all home owners to know is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can certainly help. As appraisers, it's our job to know the market dynamics of our area. At LHC Appraisals, we know when property values have risen or declined. We're masters at determining value trends in Denton, Denton County and surrounding areas. When faced with data from an appraiser, the mortgage company will often remove the PMI with little trouble. At which time, the homeowner can relish the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: