Let LHC Appraisals help you learn if you can eliminate your PMI
It's typically understood that a 20% down payment is common when getting a mortgage. Considering the risk for the lender is generally only the difference between the home value and the amount outstanding on the loan, the 20% provides a nice cushion against the costs of foreclosure, selling the home again, and regular value changeson the chance that a borrower defaults.
Banks were accepting down payments as low as 10, 5 and even 0 percent during the mortgage boom of the mid 2000s. How does a lender handle the additional risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI takes care of the lender in the event a borrower doesn't pay on the loan and the value of the home is lower than the loan balance.
Since the $40-$50 a month per $100,000 borrowed is rolled into the mortgage payment and often isn't even tax deductible, PMI can be expensive to a borrower. It's money-making for the lender because they acquire the money, and they get paid if the borrower doesn't pay, opposite from a piggyback loan where the lender absorbs all the damages.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How buyers can refrain from bearing the expense of PMI
With the utilization of The Homeowners Protection Act of 1998, on nearly all loans lenders are required to automatically eliminate the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. Savvy homeowners can get off the hook sooner than expected. The law states that, upon request of the homeowner, the PMI must be dropped when the principal amount reaches just 80 percent.
Considering it can take countless years to get to the point where the principal is only 20% of the initial amount borrowed, it's necessary to know how your home has grown in value. After all, every bit of appreciation you've accomplished over time counts towards dismissing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% mark? Despite the fact that nationwide trends predict plunging home values, be aware that real estate is local. Your neighborhood might not be following the national trends and/or your home may have gained equity before things calmed down.
The difficult thing for most home owners to understand is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can certainly help. As appraisers, it's our job to recognize the market dynamics of our area. At LHC Appraisals, we're experts at pinpointing value trends in Denton, Denton 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 generally eliminate the PMI with little anxiety. 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: