Let Karen Mann & Associates - Appraisal and Expert Witness Services help you learn if you can cancel your PMI
A 20% down payment is typically the standard when buying a house. The lender's liability is generally only the difference between the home value and the sum outstanding on the loan, so the 20% supplies a nice cushion against the costs of foreclosure, selling the home again, and typical value variations in the event a borrower doesn't pay.
The market was working with down payments as low as 10, 5 and often 0 percent in the peak of last decade's mortgage boom. How does a lender handle the additional risk of the small down payment? The solution is Private Mortgage Insurance or PMI. This supplemental policy covers the lender in the event a borrower defaults on the loan and the market price of the property is less than what the borrower still owes on the loan.
PMI is pricey to a borrower because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and generally isn't even tax deductible. It's money-making for the lender because they collect the money, and they receive payment if the borrower doesn't pay, separate from a piggyback loan where the lender takes in 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 a buyer keep from bearing the cost of PMI?
With the utilization of The Homeowners Protection Act of 1998, on most loans lenders are forced to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. The law stipulates that, upon request of the homeowner, the PMI must be released when the principal amount reaches just 80 percent. So, smart homeowners can get off the hook ahead of time.
Since it can take many years to reach the point where the principal is just 20% of the original amount borrowed, it's essential to know how your home has grown in value. After all, any appreciation you've gained over time counts towards removing PMI. So why pay it after your loan balance has fallen below the 80% mark? Your neighborhood may not be reflecting the national trends and/or your home may have acquired equity before things simmered down, so even when nationwide trends hint at falling home values, you should realize that real estate is local.
An accredited, licensed real estate appraiser can help home owners understand just when their home's equity goes over the 20% point, as it's a tough thing to know. As appraisers, it's our job to understand 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 pinpointing value trends in Discovery Bay, Contra Costa County and surrounding areas. When faced with data from an appraiser, the mortgage company will often eliminate the PMI with little trouble. At that time, the homeowner can retain the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: