Let Karen Mann & Associates - Appraisal and Expert Witness Services help you discover if you can get rid of your PMI
When buying a house, a 20% down payment is typically the standard. Since the risk for the lender is generally only the difference between the home value and the amount due on the loan, the 20% adds a nice buffer against the charges of foreclosure, selling the home again, and regular value fluctuationsin the event a purchaser defaults.
During the recent mortgage upturn of the last decade, it was customary to see lenders requiring down payments of 10, 5 or often 0 percent. How does a lender endure the added risk of the low down payment? The answer is Private Mortgage Insurance or PMI. This supplemental policy covers the lender in case a borrower is unable to pay on the loan and the market price 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 bundled into the mortgage monthly payment and many times isn't even tax deductible. Contradictory to a piggyback loan where the lender takes in all the costs, PMI is lucrative for the lender because they obtain the money, and they get paid if the borrower is unable to pay.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can buyers refrain from paying PMI?
The Homeowners Protection Act of 1998 obligates the lenders on nearly all loans to automatically stop the PMI when the principal balance of the loan reaches 78 percent of the primary loan amount. The law designates that, at the request of the homeowner, the PMI must be dropped when the principal amount equals only 80 percent. So, keen homeowners can get off the hook a little early.
It can take countless years to reach the point where the principal is just 20% of the initial amount borrowed, so it's necessary to know how your home has appreciated in value. After all, any appreciation you've obtained over the years counts towards removing PMI. So what's the reason for paying it after your loan balance has fallen below the 80% mark? Your neighborhood might not be reflecting the national trends and/or your home could have secured equity before things settled down, so even when nationwide trends indicate plummeting home values, you should understand that real estate is local.
The hardest thing for most home owners to understand is just when their home's equity goes over the 20% point. An accredited, licensed real estate appraiser can certainly help. It is an appraiser's job to know 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 determining value trends in Discovery Bay, Contra Costa County and surrounding areas. Faced with information from an appraiser, the mortgage company will usually remove the PMI with little effort. At that time, the home owner can enjoy the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link: