Let Allen Appraisal Service help you discover if you can get rid of your PMI
When purchasing a home, a 20% down payment is usually the standard. The lender's risk is usually only the difference between the home value and the sum outstanding on the loan, so the 20% supplies a nice buffer against the expenses of foreclosure, reselling the home, and natural value variations in the event a purchaser defaults.
During the recent mortgage boom of the last decade, it became customary to see lenders commanding down payments of 10, 5 or sometimes 0 percent. A lender is able to handle the additional risk of the reduced down payment with Private Mortgage Insurance or PMI. This supplementary plan covers the lender in case a borrower is unable to pay on the loan and the value of the house is less than what the borrower still owes on the loan.
Since the $40-$50 a month per $100,000 borrowed is compiled into the mortgage payment and often isn't even tax deductible, PMI can be costly to a borrower. It's beneficial for the lender because they acquire the money, and they get the money if the borrower doesn't pay, opposite from a piggyback loan where the lender takes in all the costs.
Does your monthly mortgage payment include PMI? Contact us, you may be able to save money by removing your PMI.
How can a home buyer avoid bearing the cost of PMI?
The Homeowners Protection Act of 1998 requires the lenders on nearly all loans to automatically cancel the PMI when the principal balance of the loan reaches 78 percent of the beginning loan amount. The law guarantees that, at the request of the homeowner, the PMI must be abandoned when the principal amount equals just 80 percent. So, keen home owners can get off the hook a little early.
Since it can take many years to get to the point where the principal is only 20% of the original amount borrowed, it's important to know how your home has grown in value. After all, any appreciation you've acquired over time counts towards abolishing PMI. So why pay it after your loan balance has dropped below the 80% mark? Even when nationwide trends indicate plunging home values, be aware that real estate is local. Your neighborhood might not be adopting the national trends and/or your home could have secured equity before things cooled off.
The toughest thing for almost all home owners to understand is just when their home's equity rises above the 20% point. An accredited, licensed real estate appraiser can surely help. As appraisers, it's our job to keep up with the market dynamics of our area. At Allen Appraisal Service, we know when property values have risen or declined. We're masters at identifying value trends in St. George, Washington County and surrounding areas. Faced with figures from an appraiser, the mortgage company will generally drop the PMI with little trouble. At that time, the homeowner can delight in the savings from that point on.
Want to learn more about PMI and the Homeowners Protection Act? Click this link:
Would you like to save money by not having to pay for Private Mortgage Insurance? We can help. Simply fill out the form below as completely as possible and we'll send you information on how to save PMI expenses, with no obligation to you. We guarantee your privacy.