Let Karen Mann & Associates - Appraisal and Expert Witness Services help you figure out if you can eliminate your PMI
A 20% down payment is usually accepted when buying a house. The lender's liability is usually only the difference between the home value and the amount outstanding on the loan, so the 20% provides a nice cushion against the expenses of foreclosure, selling the home again, and natural value variations in the event a purchaser doesn't pay.
During the recent mortgage boom of the last decade, it became common to see lenders commanding down payments of 10, 5 or even 0 percent. How does a lender handle the increased risk of the small down payment? The solution is Private Mortgage Insurance or PMI. This added plan takes care of the lender in the event a borrower is unable to pay on the loan and the worth of the property is lower than the loan balance.
Because the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and oftentimes isn't even tax deductible, PMI is pricey to a borrower. It's advantageous for the lender because they obtain the money, and they receive payment if the borrower is unable to pay, opposite from a piggyback loan where the lender consumes all the deficits.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How home owners can refrain from paying PMI
With the implementation of The Homeowners Protection Act of 1998, on nearly all loans lenders are forced to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. Smart home owners can get off the hook sooner than expected. The law designates that, upon request of the home owner, the PMI must be abandoned when the principal amount reaches only 80 percent.
It can take countless years to reach the point where the principal is just 20% of the initial loan amount, so it's crucial to know how your home has appreciated in value. After all, all of the appreciation you've obtained over the years counts towards abolishing PMI. So why should you pay it after your loan balance has fallen below the 80% threshold? Your neighborhood might not be heeding the national trends and/or your home might have gained equity before things simmered down, so even when nationwide trends signify decreasing home values, you should understand that real estate is local.
The toughest thing for most homeowners to understand is just when their home's equity goes over the 20% point. A certified, licensed real estate appraiser can surely help. It is an appraiser's job to understand the market dynamics of their area. At Karen Mann & Associates - Appraisal and Expert Witness Services, we know when property values have risen or declined. We're experts at analyzing value trends in Discovery Bay, Contra Costa County and surrounding areas. When faced with data from an appraiser, the mortgage company will most often do away with the PMI with little trouble. At that 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: