Have equity in your home? Want a lower payment? An appraisal from Karen Mann & Associates - Appraisal and Expert Witness Services can help you get rid of your PMI.
It's largely understood that a 20% down payment is the standard when getting a mortgage. The lender's liability is generally only the remainder between the home value and the amount due on the loan, so the 20% provides a nice buffer against the costs of foreclosure, reselling the home, and regular value variations in the event a purchaser defaults.
Banks were 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 endure the added risk of the small down payment? The solution is Private Mortgage Insurance or PMI. This supplementary plan guards the lender in case a borrower doesn't pay on the loan and the market price of the property is less than what is owed on the loan.
PMI can be expensive to a borrower in that the $40-$50 a month per $100,000 borrowed is bundled into the mortgage monthly payment and many times isn't even tax deductible. Contradictory to a piggyback loan where the lender absorbs all the costs, PMI is money-making for the lender because they secure the money, and they get the money if the borrower doesn't pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a buyer prevent paying PMI?
The Homeowners Protection Act of 1998 forces the lenders on most loans to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. The law guarantees that, upon request of the home owner, the PMI must be released when the principal amount equals just 80 percent. So, savvy homeowners can get off the hook sooner than expected.
Because it can take many years to arrive at the point where the principal is only 20% of the initial loan amount, it's essential to know how your home has grown in value. After all, all of the appreciation you've acquired over the years counts towards abolishing PMI. So why should you pay it after your loan balance has dropped below the 80% mark? Your neighborhood may not be heeding the national trends and/or your home may have secured equity before things calmed down, so even when nationwide trends signify declining home values, you should understand that real estate is local.
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 tough thing to know. It is an appraiser's job to understand the market dynamics of their area. At Karen Mann & Associates - Appraisal and Expert Witness Services, we're experts at recognizing value trends in Discovery Bay, Contra Costa County and surrounding areas, and we know when property values have risen or declined. Faced with figures from an appraiser, the mortgage company will most often do away with the PMI with little trouble. At that time, the homeowner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: