Let Karen Mann & Associates - Appraisal and Expert Witness Services help you decide if you can eliminate your PMI
When buying a house, a 20% down payment is usually the standard. Since the liability for the lender is usually only the remainder between the home value and the amount outstanding on the loan, the 20% provides a nice buffer against the costs of foreclosure, reselling the home, and natural value fluctuationsin the event a purchaser defaults.
During the recent mortgage upturn of the mid 2000s, it was customary to see lenders requiring down payments of 10, 5 or sometimes 0 percent. A lender is able to handle the added risk of the minimal down payment with Private Mortgage Insurance or PMI. PMI covers the lender if a borrower is unable to pay on the loan and the worth of the house is less than the loan balance.
Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and oftentimes isn't even tax deductible, PMI is pricey to a borrower. Unlike a piggyback loan where the lender absorbs all the losses, PMI is money-making for the lender because they acquire the money, and they receive payment 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 homebuyers prevent bearing the expense of PMI?
The Homeowners Protection Act of 1998 makes the lenders on most loans to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. Smart home owners can get off the hook a little early. The law designates that, at the request of the home owner, the PMI must be abandoned when the principal amount equals only 80 percent.
It can take countless years to reach the point where the principal is only 20% of the original amount borrowed, so it's crucial to know how your home has increased in value. After all, all of the appreciation you've gained over the years counts towards dismissing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% threshold? Even when nationwide trends predict declining home values, be aware that real estate is local. Your neighborhood may not be adopting the national trends and/or your home might have acquired equity before things calmed down.
An accredited, licensed real estate appraiser can help homeowners understand just when their home's equity goes over the 20% point, as it's a difficult thing to know. As appraisers, it's our job to recognize the market dynamics of our area. At Karen Mann & Associates - Appraisal and Expert Witness Services, we know when property values have risen or declined. We're masters at identifying value trends in Discovery Bay, Contra Costa County and surrounding areas. Faced with data from an appraiser, the mortgage company will usually do away with the PMI with little anxiety. At that time, the homeowner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: