Let Karen Mann & Associates - Appraisal and Expert Witness Services help you figure out if you can eliminate your PMI
When getting a mortgage, a 20% down payment is typically the standard. Because the risk for the lender is usually only the remainder between the home value and the amount remaining on the loan, the 20% provides a nice cushion against the costs of foreclosure, reselling the home, and typical value variationsin the event a borrower doesn't pay.
Banks were working with down payments as low as 10, 5 and even 0 percent in the peak of last decade's mortgage boom. How does a lender handle the increased risk of the low down payment? The solution is Private Mortgage Insurance or PMI. PMI guards the lender in the event a borrower doesn't pay on the loan and the value of the property is less than the loan balance.
PMI is pricey to a borrower because the $40-$50 a month per $100,000 borrowed is lumped into the mortgage payment and many times isn't even tax deductible. Separate from a piggyback loan where the lender takes in all the deficits, PMI is beneficial for the lender because they collect the money, and they get paid 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 a homebuyer prevent paying PMI?
The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically terminate the PMI when the principal balance of the loan reaches 78 percent of the original loan amount. Savvy home owners can get off the hook sooner than expected. The law states that, upon request of the homeowner, the PMI must be abandoned when the principal amount equals just 80 percent.
It can take many years to arrive at the point where the principal is just 20% of the initial amount borrowed, so it's essential to know how your home has appreciated in value. After all, any appreciation you've achieved over time counts towards abolishing PMI. So what's the reason for paying it after the balance of your loan has dropped below the 80% threshold? Your neighborhood might not be following the national trends and/or your home might have gained equity before things simmered down, so even when nationwide trends predict plummeting home values, you should realize that real estate is local.
A certified, licensed real estate appraiser can help homeowners understand just when their home's equity rises above the 20% point, as it's a difficult 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 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 information from an appraiser, the mortgage company will most often cancel the PMI with little effort. At that time, the home owner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: