Let Karen Mann & Associates - Appraisal and Expert Witness Services help you decide if you can get rid of your PMI
When buying a house, a 20% down payment is typically the standard. The lender's risk is often only the difference between the home value and the sum due on the loan, so the 20% supplies a nice buffer against the costs of foreclosure, reselling the home, and typical value variations in the event a purchaser defaults.
The market was working with down payments down to 10, 5 and even 0 percent during the mortgage boom of the mid 2000s. How does a lender manage the increased risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI takes care of the lender if a borrower defaults on the loan and the value of the property is lower than what the borrower still owes on the loan.
Because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage monthly payment and oftentimes isn't even tax deductible, PMI is costly to a borrower. It's profitable for the lender because they secure the money, and they receive payment if the borrower doesn't pay, different from a piggyback loan where the lender consumes 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 home buyers prevent bearing the cost of PMI?
The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically eliminate the PMI when the principal balance of the loan equals 78 percent of the primary loan amount. The law states that, at the request of the homeowner, the PMI must be abandoned when the principal amount reaches only 80 percent. So, smart home owners can get off the hook a little early.
It can take many years to arrive at the point where the principal is just 20% of the original loan amount, so 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 why pay it after your loan balance has dropped below the 80% threshold? Your neighborhood might not be following the national trends and/or your home may have secured equity before things simmered down, so even when nationwide trends hint at declining home values, you should realize that real estate is local.
An accredited, licensed real estate appraiser can help homeowners understand just when their home's equity rises above the 20% point, as it's a tough thing to know. As appraisers, it's our job to keep up with the market dynamics of our area. At Karen Mann & Associates - Appraisal and Expert Witness Services, we're masters at pinpointing value trends in Discovery Bay, Contra Costa County and surrounding areas, and we know when property values have risen or declined. Faced with information from an appraiser, the mortgage company will generally remove 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: